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Economic Growth To Continue In Second Half Of 2000 Say Purchasing Executives

FOR RELEASE: May 2, 2000

Contact: Julia K. Ogden
  NAPM Media Relations
  (480) 752-6276, Ext. 3086
 
Manufacturing Forecast Revenue Growth of 5.9%, Capacity Utilization 87.4%.
Non-Manufacturing Forecast Revenue Growth of 6.4%, Capacity Utilization 87.8%

(New Orleans, LA ) – Economic growth will continue in the second half of 2000 say the nation’s purchasing executives in their 59th Semiannual Forecast. The forecast provides insight into both the manufacturing and non-manufacturing sectors of the U.S. economy.

Manufacturing growth has been strong through the first four months of 2000 and will continue to prosper as companies look for a 5.9 percent net increase in revenue for the year. Economic growth in the non-manufacturing sector of the U. S. economy will continue to be strong in the remaining months of 2000, with a 6.4 percent net revenue increase forecast for the year say the nation’s purchasing executives.

These projections are part of the 59th Semiannual Economic Forecast issued by the Business Survey Committees of the National Association of Purchasing Management, Inc. (NAPM). The forecast was presented today by Norbert J. Ore., C.P.M., chair of the NAPM Manufacturing Survey Committee and vice president of purchasing and strategic alliances, Chesapeake Display and Packaging Company, and Ralph G. Kauffman, Ph.D., C.P.M., chair of the NAPM Non-Manufacturing Survey Committee and coordinator of the purchasing and supply management program, University of Houston-Downtown.

Manufacturing Summary

"Purchasing executives report a high level of optimism for the first half of 2000 with 67 percent of them expecting business in the first half of 2000 to be better or the same as the second half of 1999," said Ore. Industries expecting the greatest improvement over 1999 are — listed in order — Furniture; Petroleum; Tobacco; Miscellaneous (a preponderance of jewelry, toys, sporting goods and musical instruments);Textiles; Apparel; Transportation & Equipment; Chemicals; Industrial & Commercial Equipment & Computers; Primary Metals; Paper; Electronic Components & Equipment: Fabricated Metals; Rubber & Plastic Products; and Instruments & Photographic Equipment.

Purchasers report operating at 87.4 percent of their normal capacity, up from 85.4 percent reported in December 1999. Purchasing executives predict that capital expenditures will increase by 0.7 percent in 2000 compared to the December 1999 prediction of decrease of 5.6 percent. Purchasers also forecast that they will continue to reduce their purchased inventory to sales ratio. Employment in manufacturing is expected to increase only 0.5 percent, the same as expressed in December 1999. Their major concerns: inflation, higher interest rates, material shortages, and labor availability.

While purchasers expressed little concern over possible increased materials costs in 1999, they now indicate that prices paid for materials increased during the first four months of 2000 by 2.3 percent. During all of 2000, they anticipate a 2.6 percent increase in prices, up from the December 1999 prediction of 1.5 percent. They also forecast a 2.5 percent increase in their overall labor and benefits costs for 2000. Purchasers are predicting growth in both imports and exports, with exports growing more rapidly than imports. Purchasers have slightly higher expectations for the U.S. dollar to gain strength versus the currencies of major trading partners in the coming year than they did in December 1999.

Non-Manufacturing Summary

"A significant 74 percent of non-manufacturing purchasers expect their 2000 total revenues to be greater than in 1999. They now expect a 6.4 percent net increase in overall revenues compared to a 6.9 percent increase anticipated in December 1999,"said Kauffman. Industries expecting the greatest improvement over 1999 are — listed in order — Entertainment; Communication; Transportation; Business Services; Wholesale Trade; Real Estate; Mining; Agriculture; Insurance; Retail Trade; and Finance & Banking.

Non-manufacturing purchasers report operating at 87.8 percent of their normal capacity, slightly below the 88.2 percent reported in December 1999. They also forecast that they will increase their capacity to produce products and services by 5.7 percent during 2000 and that employment will increase by 2.2 percent during the balance of 2000. Purchasers now expect capital expenditures to increase by only 1.1 percent for the year after forecasting an 8.7 percent increase in December 1999. Their major economic concerns are: inflation, labor and benefit costs, higher interest rates, labor availability, and energy.

Purchasers in non-manufacturing industries, reflecting increased concern about prices they pay for materials and services, predict that these prices will increase by 4.6 percent during all of 2000. They also forecast a 3.6 percent increase in their overall labor and benefits costs for 2000. Profit margins in the non-manufacturing sector are reported to have remained almost constant during the fourth quarter 1999 and first quarter 2000 period. Profit margins are expected to increase during the remaining months of 2000. Members indicate that they have realized about 60 percent of the potential benefits to be obtained from applying technology to the supply chain and that they will continue to reduce their supply base over the next three years.

Operating Rate

Manufacturing

Purchasing executives report that their companies are currently operating at 87.4 percent of normal capacity. The increase from 85.4 percent reported in December 1999 is consistent with the growth experienced by the manufacturing sector in recent months. The following industries are operating at the highest levels of capacity: Electronic Components & Equipment; Textiles; Petroleum; Primary Metals; Glass, Stone & Aggregate; Paper; Tobacco; Chemicals; Apparel; Food; Furniture; and Instruments & Photographic Equipment.

Non-Manufacturing

Non-manufacturing purchasing executives report that their organizations are currently operating at 87.8 percent of normal capacity. This is slightly less than the 88.2 percent reported in December 1999. Considering capacity increases reported in the following section of this forecast, this indicates that non-manufacturing businesses are continuing to grow, utilizing capacity additions at almost the same rate as the capacity that existed in December. The following industries are operating at the highest levels of capacity: Finance and Banking; Insurance; *Other Services; Public Administration; Mining; Communication; Agriculture; and Real Estate.

Operating Rate
  Manufacturing Non-Manufacturing
  May 1999 Dec 1999 May 2000 May 1999 Dec 1999 May 2000

90%+

46% 51% 53% 60% 66% 61%
50%-89% 51% 46% 45% 39% 33% 38%
Below 50% 3% 3% 2% 1% 1% 1%
Est. Overall Average 84.9% 85.4% 87.4% 88.3% 88.2% 87.8%

Production Capacity – 2000 Compared to End of 1999

Manufacturing

Production capacity in manufacturing is expected to increase 4.5 percent in 2000 as 53 percent of purchasing executives reported an average capacity increase of 10 percent, 5 percent reported decreases averaging 14.2 percent, and 42 percent reported no change. This compares to a capacity increase of 3.3 percent for all of 1999 and a predicted 2000 increase of 5.1 percent in December 1999. The principal means of achieving increases in production capacity in 2000 are (in order of importance):

  1. Additional plant and/or equipment.
  2. Replacement of equipment with more technically advanced equipment.
  3. More hours worked with existing personnel.
  4. More shifts worked with existing personnel.
  5. Fewer plant shutdowns.
Manufacturing Production Capacity
       
  Reported 1999 Change Dec 1999 Magnitude of Change Predicted for 2000 Dec 1999 Magnitude of Change Predicted for 2000 May 2000 Magnitude of Change
Higher 55% +8.4% 64% +9.2% 53% +10%
Same 34% NA 30% NA 42% NA
Lower 11% -12.9% 6% -14.8% 5% -14.2%
Net Average   +3.3%   +5.1%   +4.5%

Non-Manufacturing

The capacity to produce products or provide services in the non-manufacturing sector is expected to increase 5.7 percent in 2000. This compares to a reported capacity increase of 4.2 percent for all of 1999 and an increase of 4.7 percent predicted in December 1999 for 2000.

For 2000, 54 percent of non-manufacturing purchasers expect their capacity to increase by an average 11.6 percent, and 5 percent of respondents foresee their capacity decreasing by an average of 13.1 percent. Including the 41 percent expecting no change in their capacity, results in the overall net average increase for 2000 of 5.7 percent. The principal means of achieving increases in production or provision capacity in 2000 are expected to be (in decreasing order of importance):

  1. Additional personnel (permanent, temporary, or contract).
  2. (tie) Replaced equipment with technically advanced equipment.
  3. (tie) More hours worked with existing personnel.
  4. Additional plant and/or equipment.
  5. More shifts worked with existing personnel.

Non-Manufacturing Production or Provision Capacity

       
  Reported 1999 Change Dec 1999 Magnitude of Change Predicted for 2000 Dec 1999 Magnitude of Change Predicted for 2000 May 2000 Magnitude of Change
Higher 42% +11.3% 54% +9.5% 54% +11.6%
Same 55% NA 44% NA 41% NA
Lower 3% -16.3% 2% -20.0% 5% -13.1%
Net Average   +4.2%   +4.7%   +5.7%

Predicted Capital Expenditures – 2000 vs. 1999

Manufacturing

Looking forward, purchasing executives are expecting minimal overall growth in capital expenditures in 2000. The 36 percent of members expecting to spend more on capital expenditures in 2000 predict an average increase of 27.6 percent. However, 28 percent expect a decrease averaging 33.2 percent. Considering the 36 percent who expect to spend the same on capital expenditures in both years, the overall net average change forecast for 2000 is an increase of 0.7 percent from the December 1999 predicted net average decrease of 5.6 percent. Industries expecting higher capital expenditures in 2000 over 1999 are - in order of percentage increase – Furniture; Primary Metals; Industrial & Commercial Equipment & Computers; Transportation & Equipment; Petroleum; Printing & Publishing; and Miscellaneous (a preponderance of jewelry, toys, sporting goods and musical instruments).

Non-Manufacturing

Non-manufacturing purchasing executives are currently expecting minimally increased levels of capital expenditures in 2000 compared to 1999. The net average increase over all for members is 1.1 percent. This contrasts with an increase of 8.7 percent forecast in December 1999. The 42 percent of members expecting to spend more on capital expenditures in 2000 predict an average increase of 18.5 percent. However, 23 percent anticipate a decrease averaging 28.4 percent. Considering the 35 percent who expect to spend the same on capital expenditures in 2000 as in 1999, the overall net average increase is 1.1 percent. Industries expecting the largest increase in capital expenditures in 2000 over 1999 are – in order of percentage increase – Communication; Retail Trade; Insurance; Wholesale Trade; Finance and Banking; Mining; Business Services; and Utilities.

Predicted Capital Expenditures 2000 vs. 1999
  Manufacturing Non-Manufacturing
  Predicted Dec 1999 Predicted May 2000 Magnitude of Change Predicted Dec 1999 Predicted May 2000 Magnitude of Change
Higher 37% 36% +27.6% 44% 42% +18.5%
Same 35% 36% NA 34% 35% NA
Lower 28% 28% -33.2% 22% 23% -28.4%
Net Average -5.6%   +0.7% +8.7%   +1.1%

Prices – Predicted Changes Between End of 1999 and April of 2000

Manufacturing

Purchasing executives report that prices they paid in the first part of 2000 increased by an average 2.3 percent. Purchasers who reported paying higher prices during the period of January through April 2000 totaled 59 percent and indicated average price increases of 4.9 percent. Those experiencing

price decreases included 18 percent of members with an average decrease of 3.5 percent, while 23 percent realized no change in prices.

Non-Manufacturing

Purchasing executives report that the prices they paid in the first part of 2000 increased by an average 4.3 percent. Purchasers who reported paying higher prices during the period January through April numbered 66 percent and indicated an average price increase of 7.3 percent. Those experiencing price decreases included 10 percent of members with an average decrease of 5 percent, while 24 percent realized no change in prices. Industries indicating the largest price increases in the first part of 2000 over the end of 1999 are: Retail Trade; Public Administration; Wholesale Trade; *Other Services; Entertainment; Mining; and Construction.

Prices – Predicted Changes Between End of 1999 and April 2000
  Manufacturing valign="top" width="43%" colspan="3">Non-Manufacturing
  Predicted Dec 1999 Reported May 2000 Magnitude of Change Predicted Dec 1999 Reported May 2000 Magnitude of Change
Higher 46% 59% +4.9% 47% 66% +7.3%
Same 32% 23% NA 40% 24% NA
Lower 22% 18% -3.5% 13% 10% -5.0%
Net Average +0.4%   +2.3% +1.4%   +4.3%

Prices – Predicted Changes Between End of 1999 and End of 2000

Manufacturing

Extending the price forecast to all of 2000, the proportion of purchasers expecting price increases rose from the December 1999 prediction. The net average expected price change is an increase of 2.6 percent from the December 1999 net average of 1.5 percent. The 69 percent forecasting higher prices predict an average increase of 5.2 percent while the 23 percent forecasting lower prices expect an average decrease of 4.0 percent. Adding in the 8 percent who expect no change, we see the first signs of rising prices since our December 1996 forecast. Industries predicting the largest increase over 1999 are: Paper; Rubber & Plastic Products; Petroleum; Miscellaneous (a preponderance of jewelry, toys, sporting goods and musical instruments); Primary Metals; Chemicals; Printing & Publishing; Fabricated Metals; Apparel; Textiles; Glass, Stone & Aggregate; Wood & Wood Products; and Instruments & Photographic Equipment.

Non-Manufacturing

Forecasting price changes for all of 2000, the net average price change anticipated is an increase of 4.6 percent. This reflects a much higher expectation than the 2.1 percent increase forecast in December 1999. The 74 percent of members forecasting higher prices predict an average increase of 7.1 percent, while the 9 percent forecasting lower prices expect an equal average decrease of 7.1 percent. Adding in the 17 percent who expect no change results in the forecast net increase of 4.6 percent in overall prices paid for materials and services by non-manufacturing industries in 2000. Industries forecasting the largest price increases in 2000 over 1999 are: Retail Trade; Wholesale Trade; Construction; Agriculture; Public Administration; Entertainment; and Mining.

Prices – Predicted Changes Between End of1999 and End of 2000
  Manufacturing Non-Manufacturing
  Predicted Dec 1999 Predicted May 2000 Magnitude of Change Predicted Dec 1999 Predicted May 2000 Magnitude of Change
Higher 61% 69% +5.2% 63% 74% +7.1%
Same 12% 8% NA 18% 17% NA
Lower 27% 23% -4.0% 19% 9% -7.1%
Net Average +1.5%   +2.6% +2.1%   +4.6%

Profit Margins

Manufacturing

Purchasing executives were asked about changes in profit margins that their companies may have recently experienced or are expecting during the balance of 2000. Their response indicated that 33 percent experienced an increase in profit margins during the October 1999 through April 2000 period, while 30 percent found margins worse during the same time. Looking ahead to the balance of 2000, 50 percent expect improved profit margins and 17 percent anticipate lower profit margins. The diffusion index indicates expectations of greater profit margins in the second half of 2000.

Non-Manufacturing

Non-manufacturing purchasing executives were asked about changes in profit margins that their organizations may have recently experienced and are expecting in the near future. Their response indicated that 25 percent of members experienced an increase in profit margins during the October 1999 through April 2000 period while 26 percent found worse profit margins, and 49 percent had no change in margins during the same period. Looking ahead over the period May through December 2000, 42 percent expect improved profit margins, 12 percent expect worse profit margins, and the remaining 46 percent of members anticipate no change in their profit margins over that period of time.

Profit Margins
  Manufacturing Non-Manufacturing
  Oct 1999–April 2000

Reported May 2000

Predicted:
May 2000–Dec 2000
Oct 1999–April 2000

Reported May 2000

Predicted:
May 2000–Dec 2000
Better 33% 50% 25% 42%
Same 37% 33% 49% 46%
Worse 30% 17% 26% 12%
Diffusion Index 51.5% 66.5% 49.5% 65%

Labor and Benefit Costs – Predicted Rate Change End of 1999 vs. End of 2000

Manufacturing

Purchasing executives’ overall expectations for change in labor and benefit costs for 2000 are the same as they were in December 1999. Seventy-eight percent of members who expect increased labor and benefit costs expect them to grow by an average of 3.6 percent for all of 2000, while the 4 percent forecasting lower costs see them decreasing by an average 9.6 percent. Including consideration of the 18 percent who believe costs will remain stable, the expected overall net rate of increase is 2.5 percent between the end of 1999 and the end of 2000. This percentage is the same percentage predicted in December 1999. The industries predicting the highest wage and benefits costs are: Printing & Publishing; Instruments & Photographic Equipment; Rubber & Plastic Products; Petroleum; Electronic Components & Equipment; Glass, Stone & Aggregate; Paper; Food; Wood & Wood Products; and Chemicals.

Non-Manufacturing

Purchasing executives’ expect labor and benefit costs for non-manufacturing industries to increase an average of 3.6 percent in 2000. This is somewhat higher than the 2.8 percent predicted in December 1999. Seventy-four percent of members expect such costs to increase at an average rise of 5.1 percent. Another 2 percent of purchasers expect labor and benefit costs to decrease by an average 7.5 percent. Including the 24 percent who believe costs will remain stable during 2000, the overall net rate of increase is 3.6 percent. Industries expecting the largest increases in labor and benefit costs in 2000 over 1999 are: Communication; Insurance; Real Estate; *Other Services; Wholesale Trade; Public Administration; and Construction.

Labor and Benefit Costs – Predicted Rate Change End of 2000 vs. End of 1999
  Manufacturing Non-Manufacturing
  Predicted Dec 1999 Predicted May 2000 Magnitude of Change Predicted Dec 1999 Predicted May 2000 Magnitude of Change
Higher 81% 78% +3.6% 72% 74% +5.1%
Same 16% 18% NA 21% 24% NA
Lower 3% 4% -9.6% 7% 2% -7.5%
Net Average +2.5%   +2.5% +2.8%   +3.6%

Employment

Change in Overall Employment

Manufacturing

NAPM’s Manufacturing Business Survey Committee members report that employment has decreased 1.1 percent since November 1999. They forecast that manufacturing employment will increase 0.5 percent in 2000 with 29 percent expecting greater numbers of workers. This is compared to the 37 percent who predicted higher employment for 2000 in NAPM’s December 1999 forecast. With regard to 2000, 18 percent predicted lower employment compared to 19 percent who predicted fewer workers in December 1999. The remaining 53 percent of members expect their employment levels to be unchanged for the remainder of 2000. The industries expecting the largest percentage increase in employment during 2000 are: Furniture; Rubber & Plastic Products; Printing & Publishing; Fabricated Metals; and Industrial & Commercial Equipment & Computers.

Non-Manufacturing

NAPM’s Non-Manufacturing Business Survey Committee Members report that non-manufacturing employment has increased 1.3 percent since November 1999 and forecast that employment will increase 2.2 percent during the balance of 2000. For the remainder of 2000, 44 percent expect greater numbers of workers, 16 percent of members anticipate fewer workers and 40 percent expect their employment levels to be unchanged. Industries anticipating the greatest percentage increase in their employment in the remaining part of 2000 include: Communication; Insurance; Real Estate; Business Services; Public Administration; and Wholesale Trade.

Predicted Change in Overall Employment

  Manufacturing Non-Manufacturing
  Predicted for 2000 Dec 1999 Balance of 2000 May 2000 Nominal Change Predicted for 2000 Dec 1999 Balance of 2000 May 2000 Nominal Change
Higher 37% 29% +6.0% 39% 44% +8.0%
Same 44% 53% NA 45% 40% NA
Lower 19% 18% -6.8% 16% 16% -8.7%
Net Average +0.5%   +0.5% +1.4%   +2.2%
Diffusion Index 59% 55.5%   61.5% 64.0%  

Note: A diffusion index above 50 percent would generally indicate an expectation of higher employment; below 50 percent, an expectation of lower employment.

Continued

 



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