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Second Half Will Be A Challenge In Weak Economy Say Purchasing Executives In Their 61st Semiannual Economic Forecast

FOR RELEASE: May 1, 2001

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
Manufacturing Forecast Revenue Growth of 1%, Capacity Utilization 80%.
Non-Manufacturing Forecast Revenue Growth of 4.3%, Capacity Utilization 86.4%

(Orlando, FL ) — Economic growth will continue in the second half of 2001 say the nation's purchasing executives in their 61st Semiannual Forecast. The forecast provides insight into both the manufacturing and non-manufacturing sectors of the U.S. economy.

These projections are part of the 61st 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 group director, strategic sourcing and procurement, Georgia-Pacific Corporation, 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 in the manufacturing sector expect their 2001 revenues to be greater than in 2000, but only by a narrow margin as they now anticipate 1 percent growth in revenues. Manufacturing industries expecting the greatest improvement over 2000 are — listed in order — Electronic Components & Equipment; Rubber & Plastic Products; Chemicals; Food; Industrial & Commercial Equipment & Computers; Furniture; Printing & Publishing; and Miscellaneous*.

"Manufacturing purchasers have significant concerns about their organizations' prospects for 2001 and have lost the bullish outlook that has been part of recent forecasts. Contrary to last year at this time when concerns were driven by a high growth economy — inflation, higher interest rates, material shortages, and labor availability — they now find themselves facing a rapidly weakening economy with its problems — energy costs, inflation, rising benefits costs, and declining consumer confidence."

In the sector, purchasers report operating at 80 percent of their normal capacity, down from 82.2 percent reported in December 2000. They now predict that capital expenditures will decrease 8.3 percent in 2001 compared to the December 2000 prediction of a 1.8 percent increase. Purchasers also forecast that they will continue to reduce their purchased inventory to sales ratio, while expecting manufacturing employment to decline by 1.3 percent. They also forecast an average 2.5 percent increase in overall labor and benefits costs for 2001. Manufacturing purchasers are predicting growth in exports and imports, but at decelerating rates, and expect the U.S. dollar to remain strong against the currencies of major trading partners. They predict the prices they pay will remain unchanged during 2001.

This forecast includes results of a special question asking if purchaser's companies are able to pass through wage and commodity increases. Eighty-eight percent indicated they are either unable to do so or are able to pass through a few of the increases they receive, an increase of 2 percentage points when compared to December 2000. Of the remaining 12 percent, it appears that 11 percent are able to recover all or most, and 1 percent are not experiencing increases.

Non-Manufacturing Summary

"Purchasing executives in the non-manufacturing sector expect their 2001 revenues to be greater than in 2000. However, they have reduced their estimate of the amount of increase since the last semiannual survey. In December 2000, 71 percent of non-manufacturing purchasing executives anticipated increased revenues that would grow a net average 6.9 percent. Currently, 59 percent of non-manufacturers forecast an increase with a net average growth of 4.3 percent for the year 2001. Non-manufacturing industries expecting the greatest improvement over 2000 are — listed in order — Real Estate; Insurance; Entertainment; Business Services; Utilities; and Other Services**."

"While still generally optimistic about 2001, non-manufacturing members have reversed their December 2000 forecast of increased capital spending for the year and now see a decrease of 1.1 percent. They have also reversed their December forecast of increased employment in the non-manufacturing sector during 2001 and now predict a reduction of .5 percent, and report that their employment has dropped by .5 percent since November 2000."

Non-manufacturing purchasers report that they are currently operating at 86.4 percent of their normal capacity, one percentage point below the 87.4 percent reported in December 2000. They also forecast that they will increase their capacity to produce products and provide services by 3.2 percent during 2001. Their major economic concerns are the weak economy, labor and benefit costs, energy costs and availability, inflation, and high interest rates.

Purchasers in non-manufacturing industries predict that the prices they pay for materials and services will increase 2.5 percent during 2001, the same as reported for 2000. They also forecast a 4 percent increase in their overall labor and benefit costs for 2001. They reported decreased profit margins in the fourth quarter of 2000 and the first quarter of 2001, but expect margins to improve during the rest of the year. Members indicate that they have achieved about 54 percent of potential benefits from applying technology to supply chains, and that increased and better use of technology is their number one means of improving supply chains in 2001.

Operating Rate

Manufacturing

Purchasing executives report that their companies are currently operating at 80 percent of normal capacity. The decrease from 82.2 percent reported in December 2000 signals the continuing decline in manufacturing and is the lowest reported since May 1991 when the rate was 79.2 percent. This follows December's report of the largest decline reported since the inception of this measure in 1985 and consistent with the continuing decline experienced by the manufacturing sector in recent months. The following industries are operating at capacity levels above 80 percent: Instruments & Photographic Equipment; Rubber & Plastic Products; Glass, Stone & Aggregate; Printing & Publishing; Paper; Textiles; Chemicals; Food; and Transportation & Equipment.

Non-Manufacturing

Non-manufacturing purchasing executives report that their organizations are currently operating at 86.4 percent of normal capacity. This is one percent less than the 87.4 percent reported in December 2000, and also less than the 87.8 percent reported in May 2000. Considering the expected capacity increase reported in the following section of this forecast, this indicates that non-manufacturing industries should continue to grow, but are utilizing capacity additions at a lower rate than they utilized last year. The following industries are operating at the highest levels of capacity: Public Administration; Insurance; Legal Services; Finance and Banking; and Real Estate.

Operating Rate
  Manufacturing Non-Manufacturing
  Dec 2000 May 2001 Dec 2000 May 2001
90%+ 41% 33% 59% 59%
50%-89% 57% 65% 39% 38%
Below 50% 2% 2% 2% 3%
Est. Overall Average 82.2% 80% 87.4% 86.4%

Production Capacity — 2001 Compared to End of 2000

Manufacturing

Production capacity in manufacturing is expected to increase 1.1 percent in 2001, the lowest since December 1991 when 1.3 percent was reported. This reflects the current decline in the sector as 33 percent reported an average capacity increase of 12.7 percent, 22 percent reported decreases averaging 14.3 percent, and 45 percent reported no change. This compares to a capacity increase of 4.6 percent for all of 2000 and a predicted increase of 5.3 percent for 2001 made in December 2000.

The principal means of achieving increases in production capacity in 2001 are (in order of importance):

  1. Additional plant and/or equipment
  2. Replace equipment with technically advanced equipment
  3. More hours worked with existing personnel
  4. More shifts worked with existing personnel
  5. Fewer shutdowns
Manufacturing Production Capacity
  For 2001 For 2001
  Predicted
Dec 2000
Magnitude of Change Predicted
May 2001
Magnitude of Change
Higher 57% +10.5% 33% +12.7%
Same 37% NA 45% NA
Lower 6% -11.2% 22% -14.3%
Net Average   +5.3%   +1.1%

Non-Manufacturing
The capacity to produce products or provide services in the non-manufacturing sector is expected to increase 3.2 percent during 2001. This indicates adjusted expectations of need for additional capacity when compared to a 5.9 percent rise in capacity predicted in December 2000. Capacity grew by 4.6 percent in 2000.

Within the 2001 prediction, 35 percent of non-manufacturing purchasers expect their capacity to increase by an average of 11.7 percent, and 5 percent of respondents foresee their capacity decreasing by an average 18.9 percent. Including the 60 percent expecting no change in their capacity, an overall net average increase of 3.2 percent is predicted for 2001.

The principal means of achieving increases in production or provision capacity in 2001 are (in order of importance):

  1. Additional personnel (permanent or temporary)
  2. Additional plant and/or equipment
  3. Replaced equipment with technically advanced equipment
  4. More hours worked with existing personnel
  5. Fewer shutdowns
Non-Manufacturing Production or Provision Capacity
  For 2001 For 2001
  Predicted
Dec 2000
Magnitude of Change Predicted
May 2001
Magnitude of Change
Higher 52% +11.8% 35% +11.7%
Same 46% NA 60% NA
Lower 2% -11.8% 5% -18.9%
Net Average   +5.9%   +3.2%


Predicted Capital Expenditures — 2001 vs. 2000

Manufacturing

Purchasers expect an 8.3 percent decrease in capital expenditures in 2001. This is significantly less than the December 2000 forecast when members predicted a 1.8 percent increase for 2001. Currently, 17 percent of purchasers predict increased capital expenditures in 2001 with an average increase of 48.9 percent, while the 51 percent who said their capital spending will be reduced report an average decrease of 32.4 percent. Thirty-two percent say they will spend the same as in 2000. Industries showing the greatest increase are: Electronic Components & Equipment; Glass, Stone & Aggregate; Industrial & Commercial Equipment & Computers; and Food.

Non-Manufacturing

Non-manufacturing purchasing executives reversed their December 2000 prediction of increased capital expenditures in 2001 and now forecast a 1.1 percent decrease in capital spending compared to what they spent in 2000. The 33 percent of members expecting to spend more predict an average increase of 24.9 percent. An additional 37 percent anticipate a decrease averaging 25.7 percent. Considering the 30 percent who expect to spend the same on capital expenditures in 2001 as they did in 2000, the overall net average change forecast for 2001 is a decrease of 1.1 percent. The only industries expecting to increase capital expenditures in 2001 over 2000 are: Real Estate; Insurance; Construction; and Utilities.

Predicted Capital Expenditures 2001 vs. 2000
  Manufacturing Non-Manufacturing
  Predicted
Dec 2000
Predicted
May 2001
Magnitude
of Change
Predicted
Dec 2000
Predicted
May 2001
Magnitude
of Change
Higher 29% 17% +48.9% 41% 33% +24.9%
Same 39% 32% NA 35% 30% NA
Lower 32% 51% -32.4% 24% 37% -25.7%
Net Average +1.8%   -8.3% +1.5%   -1.1%


Prices — Predicted Changes Between End of 2000 and April 2001

Manufacturing

In the December 2000 forecast, purchasers expected a decrease of -0.2 percent in prices paid during the first four months of the year. They now report no overall change (0 percent) in prices paid for the period. The 41 percent who say their prices are higher now than at the end of 2000 report an average increase of 3.8 percent, while the 32 percent who report lower prices averaged 5 percent and the remaining 27 percent indicate no change for all of 2000. Industries predicting increases in prices paid for the first part of 2001 are: Petroleum; Food; Textiles; Glass, Stone & Aggregate; Wood & Wood Products; Chemicals; Printing & Publishing; and Miscellaneous*.

Non-Manufacturing

Non-manufacturing purchasing executives in December 2000 anticipated paying an average of 2.3 percent more for their purchases by April 2001 than they were paying in December. They now report that their prices have actually increased by only 1.4 percent. Fifty-six percent of non-manufacturing purchasers expect the prices they pay to increase 5 percent in the first part of 2001. Also, 13 percent anticipate price decreases averaging 11.2 percent. Including the 31 percent who expect no change in prices in the first four months of 2001, the net average overall price change is anticipated to be an increase of 1.4 percent for the period. Industries predicting the largest increase in prices they pay in the first part of 2001 are: Agriculture; Mining; Legal Services; Other Services**; Entertainment; and Public Administration.

Prices — Predicted Changes Between End of 2000 and April 2001
  Manufacturing Non-Manufacturing
  Predicted
Dec 2000
Reported
May 2001
Magnitude
of Change
Predicted
Dec 2000
Reported
May 2001
Magnitude
of Change
Higher 40% 41% +3.8% 60% 56% +5.0%
Same 35% 27% NA 33% 31% NA
Lower 25% 32% -5.0% 7% 13% -11.2%
Net Average -0.2%   0.0% +2.3%   +1.4%


Prices — Predicted Changes Between End of 2000 and End of 2001

Manufacturing

When asked to predict 2001 price changes, 45 percent of purchasers expect prices they pay to increase by 4.2 percent. At the same time, 39 percent anticipate decreases averaging 4.9 percent. Including the 16 percent who expect no change in prices, purchasers expect net average prices to remain unchanged for 2001 and slightly lower than the December 2000 prediction of 0.1 percent. Industries predicting increases in prices paid for the first part of 2001 are: Textiles; Wood & Wood Products; Petroleum; Food; Instruments & Photographic Equipment; Glass, Stone & Aggregate; Primary Metals; Miscellaneous*; and Paper.

Non-Manufacturing

Looking out to the end of 2001, non-manufacturing purchasers expect prices they pay to continue to increase in the last part of the year resulting in an overall increase for the entire year of 2.5 percent. This is a smaller increase than predicted in December 2000 when the expectation was for a 3.2 percent increase during all of 2001. Price increases are expected by 67 percent of purchasers with an average increase of 5.3 percent. Price decreases are anticipated by 14 percent of purchasers with an average reduction of 7.9 percent and 19 percent of members do not expect prices to change, resulting in a 2.5 percent overall average price increase for the year. Industries expecting the largest price increases during 2001 are: Agriculture; Mining; Legal Services; Public Administration; and Entertainment.

Prices — Predicted Changes Between End of 2000 and End of 2001
  Manufacturing Non-Manufacturing
  Predicted
Dec 2000
Predicted
May 2001
Magnitude
of Change
Predicted
Dec 2000
Predicted
May 2001
Magnitude
of Change
Higher 58% 45% +4.2% 71% 67% +5.3%
Same 13% 16% NA 19% 19% NA
Lower 29% 39% -4.9% 10% 14% -7.9%
Net Average +0.1%   0.0% +3.2%   +2.5%


Profit Margins

Manufacturing

Profitability in manufacturing appears to be decelerating as 14 percent report increased profit margins for the November 2000 to April 2001 period. Fifty-five percent report lower profit margins, and 31 percent indicate no change. When asked to forecast the balance of 2001, purchasers are much more bullish as 38 percent predict higher profit margins, 29 percent predict lower, and 33 percent expect no change. Industries expecting higher margins for all of 2001 are: Rubber & Plastic Products; Furniture; Food; Miscellaneous*; Chemicals; Fabricated Metals; Electronic Components & Equipment; and Industrial & Commercial Equipment & Computers.

Non-Manufacturing

Non-manufacturing profit margins in the two most recent quarters have not met purchasing executives' expectations. In December 2000, 38 percent predicted improved margins from November 2000 to April 2001. Now, only 25 percent actually report larger profits. The resulting diffusion index of 45 percent indicates an overall decline of margins. During the same fourth quarter 2000 — first quarter 2001 period, 35 percent found smaller profit margins and 40 percent had no change. Looking ahead over the period to the end of 2001, 38 percent expect improved profit margins, 21 percent expect lower profit margins, and the remaining 41 percent of members anticipate no change in their profit margins over that period of time. Industries expecting the highest increases in margins for the year include: Insurance; Finance and Banking; Real Estate; Business Services; and Wholesale Trade.

Profit Margins
  Manufacturing Non-Manufacturing
  Nov 2000-April 2001
Reported May 2001
Predicted
May 2001-Dec 2001
Nov 2000-April 2001
Reported May 2001
Predicted
May 2001-Dec 2001
Better 14% 38% 25% 38%
Same 31% 33% 40% 41%
Worse 55% 29% 35% 21%
Diffusion Index 29.5% 54.5% 45% 58.5%


Labor and Benefit Costs — Predicted Rate Change End of 2000 vs. End of 2001

Manufacturing

Expectations for change in overall labor and benefit costs for 2001 are slightly lower than predicted in December 2000 for 2001. Seventy-three percent of members who expect increased labor and benefit costs predict growth to average 4 percent for all of 2001, while the 5 percent forecasting lower costs see them decreasing by an average 9.4 percent. Including consideration of the 21 percent who believe costs will remain unchanged, the expected overall net rate of increase is 2.5 percent between the end of 2000 and the end of 2001. Eighteen of 20 industries expect higher labor and benefits costs in 2001; Primary Metals was the only industry forecasting lower costs, while Instruments & Photographic Equipment predicted no change. Industries expecting to pay 3 percent or higher are: Food; Wood & Wood Products; Paper; Textiles; and Petroleum.

Non-Manufacturing

Purchasing executives' expectations for change in labor and benefit costs for non-manufacturing industries in 2001 are slightly higher than they were in December 2000, rising to 4 percent from 3.9 percent. Seventy-one percent of respondents expect such costs to increase by an average 6 percent. Another 4 percent of purchasers expect labor and benefit costs to shrink by an average 5.9 percent. Including the 25 percent who believe costs will remain stable during 2001, the expected overall net average rate of increase is 4 percent. Industries expecting the largest increases in labor and benefit costs in 2001 over 2000 are: Communication; Insurance; Agriculture; Public Administration; and Entertainment.

Labor and Benefit Costs — Predicted Rate Change
End of 2000 vs. End of 2001
  Manufacturing Non-Manufacturing
  Predicted Dec 2000 Predicted May 2001 Magnitude of Change Predicted Dec 2000 Predicted May 2001 Magnitude of Change
Higher 82% 73% +4.0% 78% 71% +6.0%
Same 15% 21% NA 18% 25% NA
Lower 3% 5% -9.4% 4% 4% -5.9%
Net Average +2.6%   +2.5% +3.9%   +4.0%


Employment

Change in Overall Employment

Manufacturing

NAPM's Manufacturing Business Survey Committee members forecast that manufacturing employment will decline 1.3 percent in 2001, with 15 percent expecting employment to be 9.2 percent higher. This is compared to the 38 percent who predicted employment to be lower by 7.1 percent. The remaining 47 percent of members expect their employment levels to be unchanged in 2001. Electronic Components & Equipment was the only industry reporting expectations for greater than 1 percent growth in employment during the year.

Non-Manufacturing

NAPM's Non-Manufacturing Business Survey Committee members predict that non-manufacturing employment will decrease by 0.5 percent during the balance of 2001. Twenty-three percent expect an average 7.5 percent more workers, 21 percent of members anticipate 10.5 percent fewer workers, and 56 percent expect their employment levels to be unchanged over the rest of this year. Industries anticipating the greatest percentage increase in their employment in 2001 are: Insurance; Other Services**; Transportation; and Real Estate.

Predicted Change in Overall Employment
  Manufacturing Non-Manufacturing
  Predicted for 2001 Dec 2000 Balance of 2001
May 2001
Nominal Change Predicted for 2001 Dec 2000 Balance of 2001
May 2001
Nominal Change
Higher 26% 15% +9.2% 46% 23% +7.5%
Same 52% 47% NA 38% 56% NA
Lower 22% 38% -7.1% 16% 21% -10.5%
Net Average -0.5%   -1.3% +2.7%   -.5%
Diffusion Index 52% 38.5%   65% 51%  

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

Restructuring and Employment Changes

Manufacturing

Purchasers indicated that employment changes resulting from organizational restructuring are expected to be greater during the balance of 2001 than their expectations a year ago for the remainder of 2000. Overall, 38 percent said restructuring would reduce their employment (31 percent modest decrease and 7 percent substantial decrease). A low 5 percent anticipate restructuring to increase their employment (4 percent modest increase and 1 percent substantial increase), and 57 percent indicated no employment change from restructuring during the balance of 2001.

Non-Manufacturing

Non-manufacturing purchasers expect more decreases and fewer increases in employment as a result of organizational restructuring for the balance of 2001 than they did one year ago for the remainder of 2000.Twenty-four percent indicated that restructuring would reduce employment (19 percent moderate decrease and 5 percent substantial decrease). Ten percent expect restructuring to increase employment (9 percent moderate increase and 1 percent substantial increase), while 66 percent expect no change to employment as a result of organizational restructuring during the remainder of 2001.

Restructuring and Employment Changes
  Manufacturing Non-Manufacturing
  Balance
of 2000
May 2000
Balance
of 2001
May 2001
Balance
of 2000
May 2000
Balance
of 2001
May 2001
Substantial Increase 0% 1% 6% 1%
Moderate Increase 8% 4% 14% 9%
No Change 64% 57% 64% 66%
Moderate Decrease 25% 31% 14% 19%
Substantial Decrease 3% 7% 2% 5%
Diffusion Index 40% 33.5% 52% 43%


Export Business — Predicted Change for Next Half Year (2nd Half of 2001)

Manufacturing

The responses for this semiannual report indicate purchasers are optimistic about new export orders for the second half of 2001. Of the 78 percent of members who export, 38 percent predict an increase (36 percent moderate and 2 percent substantial) over the next half-year, which is less than the 42 percent in NAPM's December 2000 forecast. Presently, 16 percent (15 percent moderate and 1 percent substantial) see a decrease in their exports and 46 percent anticipate no change in exports over the next half-year. Industries expecting growth in exports are: Printing & Publishing; Furniture; Glass, Stone & Aggregate; Food; Electronic Components & Equipment; Miscellaneous*; Industrial & Commercial Equipment & Computers; Fabricated Metals; Textiles; and Transportation & Equipment.

Non-Manufacturing

For the next half year, non-manufacturing purchasing executives who report that their organizations engage in exporting feel moderately optimistic concerning their export business but not quite as optimistic as they were in December 2000. Of the 23 percent of non-manufacturing business survey respondents who export, 32 percent predict an increase (25 percent moderate and 7 percent substantial) over the next half-year. Two percent of members see a decrease in their exports (0 percent moderate and 2 percent substantial), and 66 percent anticipate no change in exports over the next half year. Industries expecting the largest growth in export business are: Utilities; Transportation; Public Administration; Construction; and Mining.

Predicted Change in Export Business
Next Half Year
  Manufacturing Non-Manufacturing
  First Half
of 2001
Predicted
Dec 2000
Second Half
of 2001
Predicted
May 2001
First Half
of 2001
Predicted
Dec 2000
Second Half
of 2001
Predicted
May 2001
Substantial Increase 3% 2% 5% 7%
Moderate Increase 39% 36% 38% 25%
No Change 47% 46% 52% 66%
Moderate Decrease 11% 15% 3% 0%
Substantial Decrease 0% 1% 2% 2%
Diffusion Index 65.5% 61% 69% 65%

Continued...



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