FOR RELEASE: May 7, 2002
|NAPM, Media Relations|
|800/888-6276, Ext. 3015|
The First Half of 2002 with Last Half of 2001
The manufacturing sector appears to be improving significantly during this first half-year based on the reports of survey members. The proportion of members who report the first half of 2002 to be better than the last half of 2001 is 56 percent (up from 34 percent), while 23 percent (down from 26 percent) expect it to be worse and 21 percent (down from 40 percent) expect no change. Of 20 industries, 17 report first half
business as better than last half of 2001. The industries reporting improvement are: Textiles; Apparel; Transportation & Equipment; Primary Metals; Chemicals; Wood & Wood Products; Food; Electronic Components & Equipment; Printing & Publishing; Furniture; Glass, Stone & Aggregate; Rubber & Plastic Products; Fabricated Metals; Instruments & Photographic Equipment; Paper; Miscellaneous*; and Industrial & Commercial Equipment & Computers.
The first half of 2002 is now looking better than predicted in December 2001 according to non-manufacturing purchasing and supply managers. The diffusion index indicating current expectations is 66.5 percent compared to 57 percent in December 2001. Forty-nine percent of members expect the first half of this year to be better than the last half of last year, 16 percent anticipate it will be worse, and 35 percent predict no change. The industries reporting the most improvement in 2002 are: Transportation; Agriculture; Health Services; Retail Trade; Utilities; and Finance and Banking.
|Business — First Half 2002 vs. Last Half 2001|
Note: A diffusion index above 50 percent would generally indicate an expectation of the first half of the coming year being better than the second half of the current year.
The Second Half of 2002 with the First Half of 2002
Looking ahead to the next half year, members are definitely optimistic when comparing their outlook for the second half of 2002 to the first half. While 63 percent predict it will be better, 9 percent predict it will be worse, and 28 percent expect no change. Comparing the diffusion index for the first half-year (see above chart) to the diffusion index forecast for the second half of the year (77 percent), purchasers definitely see business prospects improving in the manufacturing sector. Historically, this is the highest 2nd half business expectation since the May 1994 forecast. All reporting industries expect a better second half in 2002.
Comparing the second half of 2002 to the first half, non-manufacturing purchasing and supply executives feel more optimism than they did for the first half of the year and more optimism than they felt about the same period when asked in December 2001. The proportion of members who currently forecast the second half of 2002 to be better than the first half is 61 percent, while 7 percent expect it to be worse. An additional 32 percent of purchasers expect no change. The industries expecting the greatest improvement in the second half of the year are: Transportation; Real Estate; Wholesale Trade; Communication; Retail Trade; Business Services; Other Services**; Finance and Banking; and Health Services.
|Business — Second Half 2002 vs. First Half 2002|
|Predicted Dec 2001||Predicted May 2002||Predicted Dec 2001||Predicted May 2002|
Note: A diffusion index above 50 percent would generally indicate an expectation of the second half of the coming year being better than the first half.
Responding to a special question regarding supply chain improvements in 2002, 72 percent of members stated that they plan to take new steps in 2002 to improve their supply chain management practices. Members indicated a strong preference for supplier management, which can have an immediate impact on profitability. Following that preference members indicated other initiatives as listed below:
Responding to a special question regarding supply chain improvements in 2002, 70 percent of members stated that they plan to take steps during the current year to improve their supply chain management practices. Members' first choice is the application of electronic commerce to the conduct of supply chain activities. Following that preference members indicated other initiatives as listed below:
In this forecast, 38 percent expect to reduce their purchased inventory-to-sales ratio during 2002. This compares to 15 percent who expect the ratio to grow and 47 percent who predict no change. Industries planning major inventory reductions are: Rubber & Plastic Products; Apparel; Transportation & Equipment; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Instruments & Photographic Equipment; Chemicals; and Primary Metals.
Of the 39 percent of non-manufacturing purchasers who answered this question, 18 percent anticipate reducing their purchased inventory-to-sales ratio during 2002. An additional 11 percent expect their ratio to rise and 71 percent see no change. Industries anticipating inventory reductions are: Insurance; Business Services; Wholesale Trade; and Public Administration.
|Predicted Change in Purchased Inventory-to-Sales Ratio|
Predicted Dec 2001
|For Balance of 2002
Predicted May 2002
Predicted Dec 2001
|For Balance of 2002
Predicted May 2002
Note: A diffusion index above 50 percent would indicate an increase in the inventory-to-sales ratio; below 50 percent, a decrease in the ratio.
Purchasing and supply executives are concerned about the rapidly weakening economy, with energy costs spiraling, yet still alert to inflation as it possibly impacts the materials and services required in manufacturing. When asked to list major economic concerns, the top five responses in order of importance are:
The number one economic concern of non-manufacturing purchasing and supply executives in 2002 is economic weakness. Other concerns include: labor and benefit costs, including healthcare costs; inflation; energy costs, and interests rates. When asked to list major economic concerns, the top five responses in order of importance are:
Members' companies are significantly more optimistic about the next 12 months when compared to their responses for the past year. The 68 percent reporting that the outlook is better is the highest number reported since September 1972 (81 percent). Twenty-three percent indicate no change, and nine percent indicate the outlook will be worse over the next 12 months.
Non-manufacturing survey members' organizations are significantly more optimistic than they were in May or December of 2001. The 64 percent who report a better outlook is the highest proportion since the inception of ISM's non-manufacturing semi-annual business surveys in December 1998. Twenty-five percent expect no change in the outlook and 11 percent feel the outlook will be worse over the next 12 months.
|Outlook — Next 12 Months|
|May 2002||May 2002|
U.S. DOLLAR Predicted Strength vs. Major Trading Currencies Balance of 2002
Purchasing and supply executives are more optimistic concerning the prospective strength of the U.S. dollar for 2002 relative to major trading currencies than they were in December 2001 for 2002. The average diffusion index for this forecast is 64 percent, compared to 62 percent for the December 2001 forecast. Of the seven currencies, none are expected to outperform the dollar.
|U.S. Dollar Predicted Strength vs. Major Trading Currencies Balance of 2002|
|U.S. Dollar Will Be:||Euro||Canada
Note: A diffusion index above 50 percent would predict a generally stronger U.S. dollar; below 50 percent, a generally weaker U.S. dollar, with the distance from 50 percent indicative of the predicted strength or weakness.
Benefits of Applying Technology
A special question was asked of survey respondents to determine their progress in achieving efficiency from the application of technology to supply management. While a few companies (5 percent) have managed to move rapidly in this direction and are on the final leg, others are making excellent progress (17 percent) and appear poised to benefit from technology. The remaining 78 percent are less than three-fourths complete. It appears that there is still significant efficiency to be gained in this area over the course of the next few years.
Survey respondents were asked a special question concerning the realized proportion of potential supply chain efficiencies that could ultimately be gained from applying technology to their supply chain. The average response from non-manufacturing members was 51 percent, indicating that, on average, 49 percent of potential improvement is yet to be gained. This compares to 50 percent average reported realization in May 2002. While 28 percent of respondents have achieved at least 75 percent of their expected potential benefit, the remaining 72 percent still have significant benefits to gain.
|Benefits of Applying Technology|
% of Responses
% of Responses
|Less than 50||42%||36%|
A preponderance of jewelry, toys, sporting goods, musical instruments a manufacturing Standard Industry Classification (SIC Code)
**Other Services include:
Hotels, Rooming Houses, Camps, and Other Lodging Places; Personal Services; Automotive Repair, Services, and Parking; Miscellaneous Repair Services; Educational Services; Social Services; Museums, Art Galleries, and Botanical and Zoological Gardens; Membership Organizations; Engineering, Accounting, Research, Management, and Related Services; and Miscellaneous Services.
In addition to the forecast, the Manufacturing ISM Report on Business® is issued monthly and is considered by many economists to be the most reliable near-term economic barometer available. It is reviewed regularly by top government agencies and economic business leaders. The report, compiled from responses to questions asked of more than 350 purchasing and supply executives across the country, tracks industrial production, new orders, inventories, supplier deliveries, employment, buying policies, and prices. The report has been issued by the association since 1931, except during World War II.
Covering the non-manufacturing sector, ISM debuted the Non-Manufacturing ISM Report On Business® in June 1998. The Non-Manufacturing ISM Report On Business® is released on the third business day of each month, and is based on data received from purchasing and supply executives from 17 different non-manufacturing industries across the country. The report covers business activity, new orders, backlog of orders, new export orders, inventory change, inventory sentiment, imports, prices, employment, and supplier deliveries. A weighted composite index similar to the PMI is not available at this time for this report.
The Manufacturing and Non-Manufacturing ISM Report On Business® are published monthly by the Institute for Supply Management™, the largest supply management research and education organization in the United States. ISM is comprised of 179 affiliates with more than 47,000 members in the United States.
The full text version of the reports is posted on ISM's Home Page at www.ism.ws on the first and third business day of every month after 10:10 a.m. (ET)
The next Manufacturing ISM Report On Business® featuring the May 2002 data, will be released at 10:00 a.m. (ET) on Monday, June 3, 2002.
The next Non-Manufacturing ISM Report On Business® featuring the May 2002 data will be released at 10:00 a.m. (ET) on Wednesday, June 5, 2002.