63rd Semiannual Economic Forecast

FOR RELEASE: May 7, 2002

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
EXPECT FURTHER RECOVERY IN SECOND HALF OF 2002 SAY PURCHASING AND SUPPLY EXECUTIVES
Manufacturing Forecast
Revenue Growth of 2.8%
Capacity Utilization 79.3%
Non-Manufacturing Forecast
Revenue Growth of 2.1%
Capacity Utilization 85.6%

(San Francisco, CA) – Economic growth will continue in the second half of 2002 say the nation's purchasing and supply executives in their 63rd Semiannual Forecast. The ISM forecast provides insight into both the manufacturing and non-manufacturing sectors of the U.S. economy.

These projections are part of the forecast issued by the Business Survey Committees of the Institute for Supply Management, Inc.™ (ISM). The forecast was presented today by Norbert J. Ore., C.P.M., chair of the ISM Manufacturing Business Survey Committee and group director, strategic sourcing and procurement, Georgia-Pacific Corporation, and Ralph G. Kauffman, Ph.D., C.P.M., chair of the ISM Non-Manufacturing Business Survey Committee and coordinator of the purchasing and supply management program, University of Houston-Downtown.

Manufacturing Summary

Purchasing and supply executives expect their 2002 revenues to grow modestly from 2001 as they now anticipate 2.8 percent growth in revenues. Manufacturing industries expecting the greatest improvement over 2001 are — listed in order — Wood & Wood Products; Textiles; Glass, Stone & Aggregate; Transportation & Equipment; Miscellaneous*; Petroleum; Chemicals; Printing & Publishing; Primary Metals; Instruments & Photographic Equipment; Food; and Rubber & Plastic Products.

"Manufacturing purchasing and supply executives are more optimistic than at anytime in the past year and see significant improvement in their organizations' prospects for 2002," said Ore. "While the manufacturing sector is definitely improving, they now find themselves facing a recovering economy that still generates concerns about the weakness in segments of the economy; labor and benefits costs, including healthcare costs; energy costs; inflation; and import restraints. Capacity utilization below 80 percent discourages capital investment and is reflected in revised spending plans that now predict a decline in year-over-year capital spending."

In the sector, purchasers report operating at 79.3 percent of their normal capacity, up from 77.5 percent reported in December 2001. They now predict that capital expenditures will decrease 8.7 percent in 2002 compared to the December 2001 prediction of a 14.4 percent decrease. Purchasers also forecast that they will continue to reduce their organization's purchased inventory to sales ratio, while expecting manufacturing employment to decline an additional 0.5 percent. They also forecast an average 2 percent increase in overall labor and benefits costs for 2002. Manufacturing purchasers are predicting growth in exports and imports at accelerating rates, and expect the U.S. dollar to remain strong against the currencies of major trading partners. They predict the prices they pay will increase 2.3 percent from the present until the end of 2002.

Non-Manufacturing Summary

Fifty-six percent of non-manufacturing purchasing and supply executives expect their 2002 revenues to be greater than in 2001. They currently expect a 2.1 percent net increase in overall revenues compared to a 1.6 percent increase reported for 2001. Non-manufacturing industries expecting the greatest improvement over 2001 are – listed in order – Business Services; Retail Trade; Communication; Finance and Banking; Wholesale Trade; and Real Estate.

"Non-manufacturing purchasers report operating at 85.6 percent of their normal capacity, somewhat above the 83.1 percent reported in December 2001, and are more optimistic than in either May or December 2001," said Kauffman. "While they forecast that their capacity to produce products and provide services will rise by 2.4 percent during 2002, capital expenditures are expected to be 1.5 percent less than in 2001. This decrease reflects their current optimism to some extent since it is only half the 3 percent cut in capital spending that they predicted in December 2001. Non-manufacturers also predict that their employment will drop by 0.3 percent during the remaining months of 2002. Their major economic concerns are: a weak economy; labor and benefit costs, including healthcare costs; inflation; energy costs; and interest rates."

Purchasers in non-manufacturing industries expect that the prices they pay for materials and services will increase by 1.6 percent during 2002, a somewhat higher rise than the 0.7 percent increase reported for 2001. They also forecast a 1.5 percent increase in their overall labor and benefit costs for 2002. Profit margins are reported to have decreased in the period since November 2001, but members expect them to rise in the remaining months of 2002. Members indicate that they have achieved an average 51 percent of potential benefits from application of technology to supply chains and that electronic commerce is their number one means of improving supply chains in 2002. Overall they expect business in the second half of 2002 to be better than the first half, and for the first half of 2002 to be better than the second half of 2001.




OPERATING RATE

Manufacturing

Purchasing and supply executives report that their companies are currently operating at 79.3 percent of normal capacity. The increase from 77.5 percent reported in December 2001 signals a turn around in manufacturing and is consistent with the growth in the manufacturing sector as reported in the ISM Report On Business® for the months of February and March. However, previous data shows that an average operating rate below 80 percent indicates that the manufacturing sector is still below its historical mean. The following industries are operating at capacity levels above 80 percent: Wood & Wood Products; Glass, Stone & Aggregate; Chemicals; Textiles; Paper; Transportation & Equipment; Petroleum; Food; Apparel; Printing & Publishing; and Instruments & Photographic Equipment.

Non-Manufacturing

Non-manufacturing purchasing and supply executives report that their organizations are currently operating at 85.6 percent of normal capacity. This is somewhat higher than the 83.1 percent reported in December 2001, but slightly lower than the 86.4 percent reported in May 2001. Considering production capacity increases reported in the following section of this forecast, this indicates that non-manufacturing industries are continuing to add capacity and to employ it at a higher rate. The following industries are operating at capacity levels above 80 percent: Public Administration; Real Estate; Health Services; Finance and Banking; Agriculture; Other Services**; Wholesale Trade; Mining; Retail Trade; Transportation; and Insurance.

Operating Rate
  Manufacturing Non-Manufacturing
  May 2001 Dec 2001 May 2002 May 2001 Dec 2001 May 2002
90%+ 33% 26% 29% 59% 49% 54%
50%-89% 65% 70% 67% 38% 48% 45%
Below 50% 2% 4% 4% 3% 3% 1%
Est. Overall Average 80% 77.5% 79.3% 86.4% 83.1% 85.6%




PRODUCTION CAPACITY – 2002 Compared to End of 2001

Manufacturing

Production capacity in manufacturing is expected to increase 3.8 percent in 2002. This is slightly better than the 3.5 percent predicted in December 2001, and significantly better than the 0.7 percent reported in December for 2001. This reflects the current improvement in the sector as 46 percent reported an average capacity increase of 12.5 percent, 12 percent reported decreases averaging 15.2 percent, and 42 percent reported no change. The industries reporting expected production capacity increases above 3 percent are: Transportation & Equipment; Textiles; Glass, Stone & Aggregate; Apparel; Primary Metals; Electronic Components & Equipment; Fabricated Metals; Wood & Wood Products; Miscellaneous*; Chemicals; Printing & Publishing; and Food.

The principal means of achieving increases in production capacity in 2002 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 plant shutdowns

Manufacturing Production Capacity
  For 2001 For 2002 For 2002
  Reported
Dec 2001
Magnitude
of Change
Predicted
Dec 2001
Magnitude
of Change
Predicted
May 2002
Magnitude
of Change
Higher 29% +13.5% 39% +11.8% 46% +12.5%
Same 51% NA 53% NA 42% NA
Lower 20% -15.5% 8% -12.6% 12% -15.2%
Net Average   +0.7%   +3.5%   +3.8%


Non-Manufacturing

The capacity to produce products or provide services in the non-manufacturing sector is expected to increase 2.4 percent during 2002. This compares to an increase of 1.5 percent reported for 2001 and a 2002 forecasted increase of 2 percent predicted in December 2001. For 2002, 31 percent of non-manufacturing purchasers expect their capacity to increase by an average of 11.8 percent, and 7 percent of respondents foresee their capacity decreasing by an average of 16.2 percent. Sixty-two percent expect no change in their capacity. The industries expecting to add more than three percent to their capacity are: Transportation; Business Services; Utilities; Communication; Finance & Banking; and Construction.

The principal means of achieving increases in production or provision capacity in 2002 are (in order of importance):

  1. Additional personnel
  2. Additional plant or equipment
  3. Replace equipment with technically advanced equipment
  4. More hours worked with existing personnel
  5. Fewer shutdowns of operations or facilities


Non-Manufacturing Production or Provision Capacity
  For 2001 For 2002 For 2002
  Reported Change
Dec 2001
Magnitude
of Change
Predicted
Dec 2001
Magnitude
of Change
Predicted
May 2002
Magnitude
of Change
Higher 24% +12.3% 31% +10.5% 31% +11.8%
Same 65% NA 59% NA 62% NA
Lower 11% -13.1% 10% -11.6% 7% -16.2%
Net Average   +1.5%   +2.0%   +2.4%




PREDICTED CAPITAL EXPENDITURES — 2002 vs. 2001

Manufacturing

Purchasers expect an 8.7 percent decrease in capital expenditures in 2002. This is less than the December 2001 forecast when members predicted a 14.4 percent decrease for 2002. Currently, 24 percent of purchasers predict increased capital expenditures in 2002 with an average increase of 38.1 percent, while 47 percent said their capital spending will be reduced at an average decrease of 37.5 percent. Twenty-nine percent said they will spend the same as in 2001. Industries expecting the largest percentage decrease in capital expenditures in 2002 are: Furniture; Chemicals; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; and Apparel.

Non-Manufacturing

Non-manufacturing purchasing and supply executives are expecting to decrease their level of capital expenditures in 2002 compared to 2001 by 1.5 percent. This is only half of the 3 percent decrease forecasted in December 2001. The 32 percent of members expecting to spend more predict an average increase of 21.5 percent. An additional 35 percent anticipate a decrease averaging 24 percent. However, 33 percent expect to spend the same on capital expenditures in 2002 as in 2001. Industries expecting the largest percentage decrease in capital expenditures in 2002 are: Entertainment; Transportation; Agriculture; Communication; Mining; and Utilities.

Predicted Capital Expenditures 2002 vs. 2001
  Manufacturing Non-Manufacturing
  Predicted
Dec 2001
Predicted
May 2002
Magnitude
of Change
Predicted
Dec 2001
Predicted
May 2002
Magnitude
of Change
Higher 23% 24% +38.1% 23% 32% +21.5%
Same 36% 29% NA 41% 33% NA
Lower 41% 47% -37.5% 36% 35% -24.0%
Net Average -14.4%   -8.7% -3.0%   -1.5%




PRICES — Changes Between End of 2001 and April 2002

Manufacturing

In the December 2001 forecast, purchasers expected a decrease of 1.5 percent in prices paid during the first four months of the year. That has now been validated as they report a 1.5 percent decline in prices paid for the period. The 24 percent who say their prices are higher now than at the end of 2001 report an average increase of 6.8 percent, while the 48 percent who report lower prices averaged 6.4 percent, the remaining 28 percent indicate no change. Industries predicting increases in prices paid for the first part of 2002 are: Textiles; Petroleum; Apparel; Primary Metals; Food; and Printing & Publishing.

Non-Manufacturing

Non-manufacturing members report that their purchases in the first four months of this year cost an average of 0.4 percent more than they would have at the end of 2001. This is a reversal of the 0.6 percent decline in prices predicted in December 2001. Forty-two percent of non-manufacturing purchasers reported the prices they paid increased 4 percent in the first part of 2002. Also, 18 percent anticipate price decreases averaging 6.9 percent. The remaining 40 percent expect no change in prices in the first four months of 2002. Industries predicting the largest increase in prices they pay in the first part of 2002 are: Insurance; Health Services; Construction; Communication; Wholesale Trade; and Agriculture.

Prices – Changes Between End of 2001 and April 2002
  Manufacturing Non-Manufacturing
  Predicted
Dec 2001
Reported
May 2002
Magnitude
of Change
Predicted
Dec 2001
Reported
May 2002
Magnitude
of Change
Higher 19% 24% +6.8% 36% 42% +4.0%
Same 38% 28% NA 36% 40% NA
Lower 43% 48% -6.4% 28% 18% -6.9%
Net Average -1.5%   -1.5% -0.6%   +0.4%




PRICES — Predicted Changes Between End of 2001 and End of 2002

Manufacturing

When asked to predict 2002 price changes, 43 percent of purchasers expect prices they pay to increase by 7 percent. At the same time, 43 percent anticipate decreases averaging 5 percent. Including the 14 percent who expect no change in prices, purchasers expect net average prices to increase 0.8 percent for 2002, higher than the December 2001 prediction of -0.8 percent. Industries predicting increases in prices for all of 2002 are: Textiles; Primary Metals; Fabricated Metals; Petroleum; Apparel; Printing & Publishing; and Transportation & Equipment.

Non-Manufacturing

Looking out to the end of 2002, non-manufacturing purchasers expect prices they pay to increase by 1.6 percent. Sixty-three percent of purchasers anticipate price increases averaging 4.5 percent. Seventeen percent of purchasers expect decreased prices with an average reduction of 7.6 percent and 20 percent of members do not expect prices to change. Industries expecting the highest rates of price increases in 2002 are: Wholesale Trade; Insurance; Construction; Agriculture; Real Estate; Public Administration; and Health Services.

Prices – Predicted Changes Between End of 2001 and End of 2002
  Manufacturing Non-Manufacturing
  Predicted
Dec 2001
Predicted
May 2002
Magnitude
of Change
Predicted
Dec 2001
Predicted
May 2002
Magnitude
of Change
Higher 35% 43% +7.0% 46% 63% +4.5%
Same 20% 14% NA 27% 20% NA
Lower 45% 43% -5.0% 27% 17% -7.6%
Net Average -0.8%   +0.8% +0.5%   +1.6%




PROFIT MARGINS

Manufacturing

For the November 2001 to April 2002 period 30 percent report increased profit margins, 36 percent report lower, and 34 percent indicate no change. However, profitability in manufacturing will improve for the balance of the year according to purchasing and supply executives. When asked to forecast the balance of 2002, purchasers are much more bullish as 54 percent predict higher profit margins, 15 percent predict lower, and 31 percent expect no change. Industries expecting higher margins between the end of April and the end of 2002 are: Textiles; Miscellaneous*; Apparel; Chemicals; Electronic Components & Equipment; Glass, Stone & Aggregate; Instruments & Photographic Equipment; Transportation & Equipment; Wood & Wood Products; Fabricated Metals; Paper; Primary Metals; Food; Rubber & Plastic Products; Printing & Publishing; Furniture; and Industrial & Commercial Equipment & Computers.

Non-Manufacturing

Non-manufacturing purchasing and supply executives were asked about changes in profit margins that their organizations recently experienced or were expecting in the near future. Their response indicated that 28 percent experienced an increase in profit margins during the November 2001 to April 2002 period, while 30 percent found smaller profit margins and 42 percent had no change in margins during the same period. Looking ahead over the balance of 2002, 42 percent of supply managers expect improved margins, only 15 percent expect lower profit margins, and the remaining 43 percent of members anticipate no change in their profit margins. Industries expecting the greatest increase in profit margins during the remainder of 2002 are: Finance and Banking; Retail Trade; Mining; Wholesale Trade; Utilities; Business Services; Other Services**; Transportation; and Insurance.

Profit Margins
  Manufacturing Non-Manufacturing
  Nov 2001 - April 2002
Reported May 2002
Predicted
April 2002 - Dec 2002
Nov 2001 - April 2002
Reported May 2002
Predicted
April 2002 - Dec 2002
Better 30% 54% 28% 42%
Same 34% 31% 42% 43%
Worse 36% 15% 30% 15%
Diffusion Index 47.0% 69.5% 49.0% 63.5%




LABOR AND BENEFIT COSTS — Predicted Rate Change End of 2001 vs. End of 2002

Manufacturing

Expectations for change in overall labor and benefit costs for 2002 are slightly lower than predicted in December 2001 for 2002. Sixty-eight percent of members who expect increased labor and benefit costs predict growth to average 4.2 percent for all of 2002, while the 9 percent forecasting lower costs see them decreasing by an average 9.9 percent. Including consideration of the 23 percent who believe costs will remain unchanged, the expected overall net rate of increase is 2 percent between the end of 2001 and the end of 2002. Eighteen of 20 industries expect higher labor and benefits costs in 2002. Electronic Components & Equipment was the only industry forecasting lower costs and Instruments & Photographic Equipment predicted no change. Industries expecting to pay 2 percent or higher are: Apparel; Textiles; Transportation & Equipment; Printing & Publishing; Furniture; Paper; Chemicals; Glass, Stone & Aggregate; Wood & Wood Products; and Petroleum.

Non-Manufacturing

Purchasing and supply executives' expectations for change in labor and benefit costs for non-manufacturing industries in 2002 — an increase of 1.5 percent — are lower than the 2 percent increase

they predicted in December 2001. Fifty-seven percent of respondents expect such costs to increase by an average 3.9 percent. Another 7 percent of purchasers expect labor and benefit costs to shrink by an average 9.8 percent, and 36 percent believe costs will remain stable during 2002. Industries expecting the largest increases in labor and benefit costs in 2002 over 2001 are: Agriculture; Insurance; Real Estate; Transportation; Health Services; and Retail Trade.

Labor and Benefit Costs — Predicted Rate Change
End of 2001 vs. End of 2002
  Manufacturing Non-Manufacturing
  Predicted Dec 2001 Predicted May 2002 Magnitude of Change Predicted Dec 2001 Predicted May 2002 Magnitude of Change
Higher 73% 68% +4.2% 64% 57% +3.9%
Same 22% 23% NA 24% 36% NA
Lower 5% 9% -9.9% 12% 7% -9.8%
Net Average +2.3%   +2.0% +2.0%   +1.5%




EMPLOYMENT

Change in Overall Employment – Balance 2002

Manufacturing

ISM's Manufacturing Business Survey Committee members continued to predict that manufacturing employment will decline 0.5 percent for the balance of 2002, with 27 percent expecting employment to be 5.8 percent higher. This is compared to the 26 percent who predicted employment to be lower by 8 percent. The remaining 47 percent of members expect their employment levels to be unchanged for the balance of 2002. Industries anticipating the greatest reduction in their employment in the coming months of 2002 are: Paper; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Furniture; and Chemicals.

Non-Manufacturing

ISM's Non-Manufacturing Business Survey Committee members report that non-manufacturing employment has decreased 2.2 percent since November 2001 and forecast that employment will decrease an additional 0.3 percent during the balance of 2002. For the remaining months of 2002, 26 percent expect higher levels of employment, 20 percent of members anticipate lower levels, and 54 percent expect their employment levels to be unchanged. Industries anticipating the greatest reduction in their employment in the coming months of 2002 are: Insurance; Mining; Entertainment; Public Administration; Transportation; Construction; and Finance and Banking.

Predicted Change in Overall Employment
  Manufacturing Non-Manufacturing
  Predicted for 2002
Dec 2001
Balance of 2002
May 2002
Nominal Change Predicted for 2002
Dec 2001
Balance of 2002
May 2002
Nominal Change
Higher 22% 27% +5.8% 26% 26% +6.2%
Same 45% 47% NA 45% 54% NA
Lower 33% 26% -8.0% 29% 20% -9.3%
Net Average -0.5%   -0.5% +0.0%   -0.3%




Restructuring and Employment Changes

Manufacturing

Purchasers expect some employment changes resulting from organizational restructuring are expected during the balance of 2002. Overall, 30 percent said restructuring would reduce their employment (28 percent modest decrease and 2 percent substantial decrease). While 8 percent anticipate restructuring to increase their employment (7 percent modest increase and 1 percent substantial increase), 62 percent indicated no employment change from restructuring during the balance of 2002. The industries expecting the greatest reductions in employment as a result of restructuring are: Rubber & Plastic Products; Paper; Chemicals; Industrial & Commercial Equipment & Computers; Miscellaneous*; Apparel; and Printing & Publishing.

Non-Manufacturing

Non-manufacturing purchasers expect a net overall reduction of employees to be the result of organizational restructuring for the balance of 2002. Twenty-one percent indicated that restructuring would reduce employment (19 percent moderate decrease and 2 percent substantial decrease). Thirteen percent expect restructuring to increase employment (12 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 2002. The industries expecting the greatest reductions as a result of restructuring are: Entertainment; Wholesale Trade; Insurance; Finance and Banking; Utilities; Construction; and Public Administration

Restructuring and Employment Changes
  Manufacturing Non-Manufacturing
  Balance of 2001
May 2001
Balance of 2002
May 2002
Balance of 2001
May 2001
Balance of 2002
May 2002
Substantial Increase 1% 1% 1% 1%
Moderate Increase 4% 7% 9% 12%
No Change 57% 62% 66% 66%
Moderate Decrease 31% 28% 19% 19%
Substantial Decrease 7% 2% 5% 2%
Diffusion Index 33.5% 39% 43% 46%




EXPORT BUSINESS — Predicted Change for Next Half Year (2nd Half of 2002)

Manufacturing

The responses for this semiannual report indicate purchasers are optimistic about new export orders for the second half of 2002. Of the 78 percent of members who export, 49 percent predict an increase (45 percent moderate and 4 percent substantial) over the next half-year, which is more than the 43 percent in ISM's December 2001 forecast. Presently, 10 percent (9 percent moderate, 1 percent substantial) see a decrease in their exports and 41 percent anticipate no change in exports over the next half-year. Seventeen of 20 industries expect growth in exports: Apparel; Petroleum; Instruments & Photographic Equipment; Glass, Stone & Aggregate; Textiles; Printing & Publishing; Chemicals; Electronic Components & Equipment; Wood & Wood Products; Miscellaneous*; Food; Fabricated Metals; Furniture; Primary Metals; Transportation & Equipment; Industrial & Commercial Equipment & Computers; and Rubber & Plastic Products.

Non-Manufacturing

For the next half year, non-manufacturing purchasing and supply executives who report that their organizations engage in exporting feel somewhat less optimistic than they did in December 2001 concerning their export business. Of the 19 percent of non-manufacturing business survey respondents who report that they export, 29 percent predict an increase (29 percent moderate and 0 percent substantial) over the next half-year. Three percent of members see a decrease in their exports (3 percent moderate and 0 percent substantial), and 68 percent anticipate no change in exports over the next half year. The four industries, of the 12 who export, expecting growth in export business in the second half of 2002 are: Mining; Wholesale Trade; Finance and Banking; and Retail Trade.

Predicted Change in Export Business Next Half Year
  Non-Manufacturing
  First Half of 2002
Predicted Dec 2001
Second Half of 2002
Predicted May 2002
First Half of 2002
Predicted Dec 2001
Second Half of 2002
Predicted May 2002
Substantial Increase 4% 4% 10% 0%
Moderate Increase 39% 45% 25% 29%
No Change 41% 41% 60% 68%
Moderate Decrease 14% 9% 3% 3%
Substantial Decrease 2% 1% 2% 0%
Diffusion Index 63.5% 69.5% 65% 63%




IMPORT BUSINESS — Predicted Change for Next Half Year (Second half of 2002)

Manufacturing

Purchasers expect continued growth in imports. Of the 85 percent who import, 51 percent predict an increase in their imports over the next half-year (41 percent moderate and 10 percent substantial), while 12 percent predict a decrease in imports of materials (9 percent moderate and 3 percent substantial). Thirty-seven percent expect no change in imports. Industries expecting growth in imports are: Petroleum; Furniture; Printing & Publishing; Miscellaneous*; Fabricated Metals; Chemicals; Industrial & Commercial Equipment & Computers; Instruments & Photographic Equipment; Electronic Components & Equipment; Transportation & Equipment; Paper; Textiles; Food; Glass, Stone & Aggregate; and Wood & Wood Products.

Non-Manufacturing

Non-manufacturers have about the same overall expectation for use of imports for the next half year as they did in December 2001 for the first half of 2002. Of the 35 percent of non-manufacturing organizations who import, 26 percent predict an increase in their imports during the second half or 2002 (26 percent moderate and 0 percent substantial). Thirteen percent predict a decrease in imports of materials and services (11 percent moderate and 2 percent substantial). The remaining 61 percent of purchasers expect no change in imports over the next half year. Industries expecting growth in imports are: Retail Trade; Wholesale Trade; Health Services; and Other Services**.

Predicted Change in Import Business Next Half Year
  Manufacturing Non-Manufacturing
  First Half of 2002
Predicted Dec 2001
Second Half of 2002
Predicted May 2002
First Half of 2002
Predicted Dec 2001
Second Half of 2002
Predicted May 2002
Substantial Increase 7% 10% 4% 0%
Moderate Increase 34% 41% 21% 26%
No Change 41% 37% 61% 61%
Moderate Decrease 13% 9% 11% 11%
Substantial Decrease 5% 3% 3% 2%
Diffusion Index 61.5% 69.5% 55.5% 56.5%




BUSINESS REVENUES

Business Revenues Comparison — 2002 vs. 2001

Manufacturing

Looking ahead, expectations for increased revenues in 2002 indicate modest growth as purchasing and supply executives indicate an overall net nominal increase of 2.8 percent in business revenues for 2002 over 2001. This is lower than the 3.2 percent increase that was forecast in December 2001 for all of 2002. Fifty-eight percent say that nominal revenues (before adjusting for inflation) will increase an average of 11.8 percent over 2001. Conversely, 25 percent say their nominal revenues will decrease an average of 15.6 percent, and the remaining 17 percent indicate no change. Industries expecting higher revenues in 2002 are: Wood & Wood Products; Textiles; Glass, Stone & Aggregate; Transportation & Equipment; Miscellaneous*; Petroleum; Chemicals; Printing & Publishing; Primary Metals; Instruments & Photographic Equipment; Food; and Rubber & Plastic Products.

Manufacturing Business Revenues — 2002 vs. 2001
  Predicted
Dec 2001
Nominal
% Change
Predicted
May 2002
Nominal
%Change
Higher 59% +9.8% 58% +11.8%
Same 20% NA 17% NA
Lower 21% -12.3% 25% -15.6%
Net Average   +3.2%   +2.8%


Non-Manufacturing

Non-manufacturing purchasers forecast that business revenues for 2002 will be improved over 2001 by 2.1 percent. This is substantially less than the 7.6 percent increase predicted in December 2001, but greater than the 1.6 percent increase reported for 2001 revenues over 2000 revenues. The 56 percent of members forecasting better business in 2002 than in 2001 estimate an average nominal (before adjusting for inflation) revenue increase of 9.1 percent. This compares to an average nominal decrease of 13.4 percent forecast by the 22 percent who predict worse business in 2002. The remaining 22 percent see no change in 2002. Industries expecting the largest percent increase in revenues in 2002 are: Business Services; Retail Trade; Communication; Finance and Banking; Wholesale Trade; and Real Estate.

Non-Manufacturing Business Revenues: 2002 vs. 2001
  Predicted
Dec 2001
Nominal
% Change
Predicted
May 2002
Nominal
%Change
Higher 66% +14.8% 56% +9.1%
Same 19% NA 22% NA
Lower 15% -14.3% 22% -13.4%
Net Average   +7.6%   +2.1%


63rd Semiannual Forecast Continued...