62nd Semiannual Economic Forecast

FOR RELEASE: December 11, 2001

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
ECONOMIC GROWTH TO RETURN IN 2002
Manufacturing Recovery Expected
Revenue to Grow 3.2%; Capacity Utilization at 77.5%
Capital Spending Down 14.4%
Non-Manufacturing Expected to be Stronger
Revenue Growth at 7.6%; Capacity Utilization at 83.1%

(New York, NY) — Economic growth in the U.S. will resume into 2002, say the nation's purchasing and supply executives in their 62nd Semiannual Economic Forecast. Expectations for 2002 are higher in the non-manufacturing sector, but both sectors are less optimistic about the coming year. While this is somewhat of a mixed message, the overall prediction is for resumption of economic growth after the downturn experienced in 2001.

These projections are part of the forecast issued by the Business Survey Committee of the Institute for Supply Management™ (ISM) (formerly the National Association of Purchasing Management). 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 by 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 at the University of Houston-Downtown.

Manufacturing Summary

Looking forward to 2002, 59 percent of survey respondents expect revenues to be greater than in 2001 when 66 percent expected revenues to be greater than in 2000. However, the panel of purchasing and supply executives expects a 3.2 percent net increase in overall revenues for 2002, compared to an actual decrease of 2.3 percent increase reported for 2001. Manufacturing industries expecting the greatest improvement over 2001 are — listed in order — Wood & Wood Products; Apparel; Food; Furniture; Miscellaneous*; Industrial & Commercial Equipment & Computers; Fabricated Metals; and Rubber & Plastic Products.

"Manufacturing purchasing and supply executives are less than bullish about their organizations' prospects for the first half of 2002 while predicting significant improvement during the second half. At present, the sector continues to struggle as manufacturing is in its 16th month of decline as reported in the monthly Manufacturing ISM Report on Business®. They express their major concerns as weak economy and concerns about a potential recession, labor and benefits costs, energy costs, effects of terrorism, and consumer confidence. 2002 will offer its challenges, but it will also set the stage for a recovery in manufacturing."

In the sector, the panel reports operating at 77.5 percent of their normal capacity, down from 80 percent reported in May 2001. Purchasing and supply executives predict that capital expenditures will decrease 14.4 percent in 2002, compared to the December 2001 prediction of a 1.8 percent increase. The survey respondents also forecast that they will continue to reduce their purchased inventory to sales ratio, while expecting manufacturing employment to decline by 0.5 percent. They also forecast an average 2.3 percent increase in overall labor and benefits costs for 2002. 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 decrease 1.5 percent during the first four months of 2002 and will increase a meager 0.7 percent for the balance of 2002, resulting in only a slight change in prices during the upcoming year. Respondents major concerns are a weak economy, labor and benefit costs, energy costs, effects of terrorism, and consumer confidence.

A special question was asked of purchasing and supply executives to determine their progress in achieving efficiency from the application of technology to supply management. While a few companies have managed to move rapidly in this direction, others have made progress, but there is still significant opportunity in the move toward process improvement through technology.

Non-Manufacturing Summary

"A significant 66 percent of non-manufacturing purchasing and supply executives expect their 2002 revenues to be greater than in 2001. They currently expect a 7.6 percent net increase in overall revenues compared to a 1.6 percent increase reported for 2001," said Kauffman. Non-manufacturing industries expecting the greatest improvement over 2001 are — listed in order — Business Services; Agriculture; Mining; Other Services**; Insurance; Wholesale Trade; Retail Trade; and Communication.

Non-manufacturing purchasers report operating at 83.1 percent of their normal capacity, somewhat below the 86.4 percent reported in May 2001. They also forecast that they will increase their capacity to produce products and provide services by 2 percent during 2002. On the down side, they predict that employment will be unchanged in the coming year and they expect capital expenditures to decrease by 3 percent, down from a 0.6 percent increase reported for 2001. Their major economic concerns are weakness in the economy, labor and benefit costs, and cost increases and inflation.

Purchasers in non-manufacturing industries predict that the prices they pay for materials and services will increase by a relatively mild 0.5 percent during 2002, down from 0.7 percent reported for 2001. They also forecast a 2 percent increase in their overall labor and benefit costs for 2002. They reported decreased profit margins in the second and third quarters of 2001 but expect margins to increase at a slow rate in the first four months of 2002. Members indicate that they have achieved an average 50 percent of potential benefits from application of technology to supply chains and that increased use of technology 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, although they look 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 77.5 percent of normal capacity. This decrease from May 2001 (80 percent) continues a trend that began in December 2000 and has resulted in a 9.9 percentage points decline since the high reported in May 2000 (87.4 percent). This is consistent with the 16 months of decline experienced by the manufacturing sector as reported in the monthly Manufacturing ISM Report on Business®. The following industries are operating at the highest levels of capacity: Glass, Stone & Aggregate; Paper; Food; Printing & Publishing; Chemicals; Furniture; and Primary Metals.

Non-Manufacturing

Non-manufacturing purchasing and supply executives report that their organizations are currently operating at 83.1 percent of normal capacity. This is a significant drop from the 86.4 percent reported in May 2001, and the 87.4 percent reported in December 2000. Considering capacity increases reported in the following section of this forecast, this indicates that non-manufacturing industries are continuing to add capacity, but are employing it at a lesser rate. The following industries are operating at the highest levels of capacity: Real Estate; Finance and Banking; Mining; Public Administration; Insurance; and Health Services.

Operating Rate
  Manufacturing Non-Manufacturing
  Dec 2000 May 2001 Dec 2001 Dec 2000 May 2001 Dec 2001
90%+ 41% 33% 26% 59% 59% 49%
50%-89% 57% 65% 70% 39% 38% 48%
Below 50% 2% 2% 4% 2% 3% 3%
Est. Overall Average 82.2% 80% 77.5% 87.4% 86.4% 83.1%


PRODUCTION CAPACITY

Manufacturing

Production capacity in manufacturing is expected to increase 3.5 percent in 2002 as 39 percent of purchasing and supply executives reported an average capacity increase of 11.8 percent, 8 percent reported decreases averaging 12.6 percent, and 53 percent reported no change. This compares to a capacity increase of 0.7 percent for all of 2001 and a predicted increase of 5.3 percent for 2001 made in December 2000. 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 shutdowns

Manufacturing Production Capacity Change
  For 2001 For 2001 For 2002
  Predicted
May 2001
Magnitude
of Change
Reported
Dec 2001
Magnitude
of Change
Predicted
Dec 2001
Magnitude
of Change
Higher 33% +12.7% 29% +13.5% 39% +11.8%
Same 45% NA 51% NA 53% NA
Lower 22% -14.3% 20% -15.5% 8% -12.6%
Net Average   +1.1%   +0.7%   +3.5%


Non-Manufacturing

The capacity to produce products or provide services in the non-manufacturing sector is expected to increase 2 percent during 2002. This compares to a reported rise of 1.5 percent for 2001. For 2002, 31 percent of non-manufacturing purchasers expect their capacity to increase by an average of 10.5 percent, and 10 percent of respondents foresee their capacity decreasing by an average of 11.6 percent. Including the 59 percent expecting no change in their capacity, an overall net average increase of 2 percent is predicted for 2002. The principal means of achieving increases in production or provision capacity in 2001 were — in order of importance:

  1. Additional personnel (permanent, temporary, or contract)
  2. Replaced equipment with technically advanced equipment
  3. More hours worked with existing personnel
  4. Additional plant and/or equipment
  5. Fewer shutdowns
Non-Manufacturing Production or Provision Capacity Change
  For 2001 For 2001 For 2002
  Predicted
May 2001
Magnitude
of Change
Reported
Dec 2001
Magnitude
of Change
Predicted
Dec 2001
Magnitude
of Change
Higher 35% +11.7% 24% +12.3% 31% +10.5%
Same 60% NA 65% NA 59% NA
Lower 5% -18.9% 11% -13.1% 10% -11.6%
Net Average   +3.2%   +1.5%   +2.0%


CAPITAL EXPENDITURES — 2001 vs. 2000

Manufacturing

Purchasers report capital expenditures in 2001 at 5 percent over 2000 levels. This is the second smallest increase reported since December 1992 and is consistent with the contraction that has occurred in the sector during 2001. Though less than robust, the showing for 2001 does exceed our members' expectations as they predicted a decrease of 8.3 percent for 2001 in the May 2001 forecast. The 23 percent of purchasers who reported increased capital expenditures in 2001 indicated an average increase of 83.1 percent, while the 45 percent who said their capital spending was reduced reported an average decrease of 31.9 percent. Thirty-two percent said they spent the same as in 2000. Industries showing the greatest increase are: Paper; Chemicals; Petroleum; Food; and Wood & Wood Products.

Manufacturing Capital Expenditures — 2001 vs. 2000
  Predicted
Dec 2000
Magnitude
of Change
Predicted
May 2001
Magnitude
of Change
Reported
Dec 2001
Magnitude
of Change
Higher 29% +44.9% 17% +48.9% 23% +83.1%
Same 39% NA 32% NA 32% NA
Lower 32% -34.9% 51% -32.4% 45% -31.9%
Net Average   +1.8%   -8.3%   +5.0%

Non-Manufacturing

Capital expenditures in non-manufacturing organizations in 2001 rose 0.6 percent over the 2000 level. This was a reversal of direction from the 1.1 percent decrease predicted in May 2001 but less than the 1.5 percent gain predicted in December 2000 and less than the actual increase of 6 percent reported for 2000 in December 2000. The 35 percent of non-manufacturing purchasing and supply executives who reported an increase in capital expenditures in 2001 indicated an average increase of 21.6 percent, while the 31 percent who said their capital spending was reduced reported an average decrease of 22.3 percent. Including the 34 percent who said they spent the same as in 2000, the overall net average increase is 0.6 percent. Industries indicating the largest increases — in order of percentage increase — in capital spending in 2001 are: Utilities; Insurance; Retail Trade; Construction; Wholesale Trade; and Transportation.

Non-Manufacturing Capital Expenditures — 2001 vs. 2000
  Predicted
Dec 2000
Magnitude
of Change
Predicted
May 2001
Magnitude
of Change
Reported
Dec 2001
Magnitude
of Change
Higher 41% +17.5% 33% +24.9% 35% +21.6%
Same 35% NA 30% NA 34% NA
Lower 24% -23.2% 37% -25.7% 31% -22.3%
Net Average   +1.5%   -1.1%   + 0.6%


PREDICTED CAPITAL EXPEDITURES — 2002 vs. 2001

Manufacturing

Looking forward, purchasing and supply executives are expecting a significant decrease in capital expenditures in 2002. The 23 percent of members expecting to spend more on capital expenditures in 2002 predict an average increase of 23.3 percent. However, 41 percent expect a decrease averaging 47.6 percent. Considering the 36 percent who expect to spend the same on capital expenditures in both years, the overall net average change forecast for 2002 is a decrease of 14.4 percent. There are only two industries expecting higher capital expenditures in 2002 over 2001: Instruments & Photographic Equipment, and Printing & Publishing.

Non-Manufacturing

Looking ahead, non-manufacturing purchasing and supply executives are expecting to decrease their level of capital expenditures in 2002 compared to 2001 by 3 percent. The 23 percent of members expecting to spend more predict an average increase of 17.8 percent. An additional 36 percent anticipate a decrease averaging 19.5 percent. Considering the 41 percent who expect to spend the same on capital expenditures in 2002 as in 2001, the overall net average change forecast for 2002 is a decrease of 3 percent. Industries expecting the largest percentage decreases — in order of percentage decrease — in capital expenditures in 2002 compared to 2001 are: Agriculture; Entertainment; Mining; Construction; Transportation; and Utilities.

Predicted Capital Expenditures 2002 vs. 2001
  Manufacturing Non-Manufacturing
  Predicted
Dec 2001
Magnitude
of Change
Predicted
Dec 2001
Magnitude
of Change
Higher 23% +23.3% 23% +17.8%
Same 36% NA 41% NA
Lower 41% -47.6% 36% -19.5%
Net Average   -14.4%   -3.0%


PRICES – Changes Between End of 2000 and End of 2001

Manufacturing

After an initial forecast in December 2000 of a slight increase in prices paid during 2001, purchasers stated their expectation of no change (0 percent) in ISM's May 2001 report. They now report an expected decrease of 3.1 percent for all of 2001. The 24 percent who say their prices are higher now than at the end of 2000 report an average increase of 4.8 percent, while the 62 percent who report lower prices averaged 6.9 percent and the remaining 15 percent indicate no change for all of 2001.

Manufacturing Price Changes Between End of 2000 and End of 2001
  Predicted
Dec 2000
Magnitude
of Change
Predicted
May 2001
Magnitude
of Change
Reported
Dec 2001
Magnitude
of Change
Higher 58% +3.4% 45% +4.2% 24% +4.8%
Same 13% NA 16% NA 15% NA
Lower 29% -6.6% 39% -4.9% 62% -6.9%
Net Average   +0.1%   0.0%   -3.1%

Non-Manufacturing

Prices paid by non-manufacturing industries in 2001 are reported to have increased by 0.7 percent compared to their level at the end of 2000. This is a decrease from the 2.5 percent rise predicted in May 2001 and from the 2.5 percent increase reported for 2000 in December 2000. The 39 percent of non-manufacturing purchasing and supply executives who say their prices are higher now than at the end of 2000 report an average increase of 7.1 percent, while the 32 percent who report lower prices indicate an average decrease of 6.4 percent. After including the 29 percent who indicate no change, the purchasers reported a net average overall price increase of 0.7 percent for all of 2001.

Non-Manufacturing Price Changes Between End of 2000 and End of 2001
  Predicted
Dec 2000
Magnitude
of Change
Predicted
May 2001
Magnitude
of Change
Reported
Dec 2001
Magnitude
of Change
Higher 71% +5.2% 67% +5.3% 39% +7.1%
Same 19% NA 19% NA 29% NA
Lower 10% -5.4% 14% -7.9% 32% -6.4%
Net Average   +3.2%   +2.5%   + 0.7%


PRICES – Predicted Changes Between End of 2001 and April 2002

Manufacturing

Nineteen percent of purchasers expect prices they pay to increase in the first part of 2002 by 4.8 percent. At the same time, 43 percent anticipate decreases averaging 5.6 percent. Including the 38 percent who expect no change in prices in the first four months of 2002, purchasers expect the net average overall price change to decrease 1.5 percent for the period. Industries predicting decreases in prices paid for the first part of 2002 are: Petroleum; Printing & Publishing; Rubber & Plastic Products; Fabricated Metals; and Paper.

Non-Manufacturing

Thirty-six percent of non-manufacturing purchasers expect the prices they pay to increase 3.3 percent in the first part of 2002. Also, 28 percent anticipate price decreases averaging 6.5 percent. Including the 36 percent who expect no change in prices in the first four months of 2002, the net average overall price change is anticipated to be a decrease of 0.6 percent for the period. Industries predicting the largest decrease in prices they pay in the first part of 2002 are: Transportation; Entertainment; and Finance and Banking.

Prices – Predicted Changes Between End of 2001 and April 2002
  Manufacturing Non-Manufacturing
  Predicted
Dec 2001
Magnitude
of Change
Predicted
Dec 2001
Magnitude
of Change
Higher 19% +4.8% 36% +3.3%
Same 38% NA 36% NA
Lower 43% -5.6% 28% -6.5%
Net Average   -1.5%   - 0.6%


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

Manufacturing

The prediction for price decreases continued for 2002 with 35 percent expecting an average price increase of 4.4 percent, while 45 percent expect an average decline of 5.2 percent. The remaining 20 percent expect no change in their average for the coming year. The net average of the responses indicates a decrease of 0.8 percent overall by the end of 2002. Industries expecting to pay higher overall prices in 2002 are: Furniture; Apparel; Instruments & Photographic Equipment; and Glass, Stone & Aggregate.

Non-Manufacturing

Looking out to the end of 2002, non-manufacturing purchasers expect prices they pay to increase a moderate amount in the last part of the year resulting in an overall increase for the entire year of 0.5 percent. Forty-six percent of purchasers anticipate price increases with an average increase of 3.9 percent. Twenty-seven percent of purchasers expect decreased prices with an average reduction of 4.8 percent and 27 percent of members do not expect prices to change, resulting in a 0.5 percent overall average price increase for the year. Industries expecting the highest rates of price increases in 2002 are: Other Services**; Real Estate; Agriculture; Public Administration; Health Services; and Insurance.

Predicted Price Changes Between End of 2002 and End of 2001
  Manufacturing Non-Manufacturing
  Predicted
Dec 2001
Magnitude
of Change
Predicted
Dec 2001
Magnitude
of Change
Higher 35% +4.4% 46% +3.9%
Same 20% NA 27% NA
Lower 45% -5.2% 27% -4.8%
Net Average   -0.8%   + 0.5%


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

Manufacturing

Purchasing and supply executives' expectation for change in overall labor and benefit costs for 2002 are lower than they were in December 2000 (2.6 percent) for 2001. Seventy-three percent of members who expect increased labor and benefit costs expect them to grow by an average of 3.9 percent for all of 2002, while the 5 percent forecasting lower costs see them decreasing by an average 11.8 percent. Including consideration of the 22 percent who believe costs will remain stable, the expected overall net rate of increase is 2.3 percent between the end of 2001 and the end of 2002. Eighteen of 20 industries expect higher labor and benefits costs in 2002. Wood & Wood Products and Rubber & Plastics were the industries forecasting lower costs. Industries expecting to pay 2.5 percent or higher are: Textiles; Transportation & Equipment; Electronic Components & Equipment; Glass, Stone & Aggregate; Furniture; Fabricated Metals; Paper; Chemicals; Food; Petroleum; and Industrial & Commercial Equipment & Computers.

Non-Manufacturing

Purchasing and supply executives' expectations for change in labor and benefit costs for non-manufacturing industries in 2002 are lower than they were a year ago for 2001. Sixty-four percent of respondents expect such costs to increase by an average 4.6 percent. Another 12 percent of purchasers expect labor and benefit costs to shrink by an average 8 percent. Including the 24 percent who believe costs will remain stable during 2002, the expected overall net average rate of increase is 2 percent. The forecast in December 2000 for 2001 was an increase of 3.9 percent. Industries expecting the largest increases in labor and benefit costs in 2002 over 2001 are: Utilities; Insurance; Agriculture; Transportation; Retail Trade; Communication; and Real Estate.

Labor and Benefit Costs – Predicted Rate Change End of 2002 vs. End of 2001
  Manufacturing Non-Manufacturing
  Predicted
Dec 2001
Magnitude
of Change
Predicted
Dec 2001
Magnitude
of Change
Higher 73% +3.9% 64% +4.6%
Same 22% NA 24% NA
Lower 5% -11.8% 12% - 8.0%
Net Average   +2.3%   +2.0%


EMPLOYMENT

Manufacturing

ISM's Manufacturing Business Survey Committee members forecast that manufacturing employment will decline 0.5 percent in 2002, with 22 percent expecting employment to be 11.2 percent higher. This is compared to the 33 percent who predicted employment to be lower by 8.9 percent. The remaining 45 percent of members expect their employment levels to be unchanged in 2001. Industries reporting more than 2 percent growth in employment are: Transportation & Equipment and Textiles. Industrial & Commercial Equipment & Computers, Apparel, and Instruments & Photographic Equipment predict a decline in employment of 3 percent or greater.

Non-Manufacturing

ISM's Non-Manufacturing Business Survey Committee members report that non-manufacturing employment has decreased 1.7 percent since May 2001 and forecast that employment will not change in 2002. For 2002, 26 percent expect greater numbers of workers, 29 percent of members anticipate fewer workers, and 45 percent expect their employment levels to be unchanged from 2001 levels. Industries anticipating an increase in their employment in 2002 are: Business Services; Communication; Public Administration; and Other Services**.

Predicted Change in Overall Employment
  Manufacturing Non-Manufacturing
  Predicted
For 2002
Dec 2001
Nominal
% Change
Predicted
For 2002
Dec 2001
Nominal
% Change
Higher 22% +11.2% 26% +9.0%
Same 45% NA 45% NA
Lower 33% -8.9% 29% -7.9%
Net Average   -0.5%   +0.0%
Diffusion Index 44.5%   48.5%  

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


EXPORT BUSINESS – Predicted Change for Next Half Year (First Half of 2002)

Manufacturing

The responses for this semiannual report indicate purchasers are feeling optimistic about new export orders for the first half of 2002. However, ISM's New Export Orders Index in the monthly Manufacturing ISM Report On Business® recently has shown a downward trend in new export orders. Of the 75 percent of members who export, 43 percent predict an increase (39 percent moderate and 4 percent substantial) over the next half year, which is slightly more than the 38 percent in ISM's May 2001 forecast. Presently, 16 percent (14 percent moderate, 2 percent substantial) see a decrease in their exports and 41 percent anticipate no change in exports over the next half year. Industries expecting above average growth in exports are: Miscellaneous*; Paper; Petroleum; Textiles; Food; Chemicals; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Wood & Wood Products; Fabricated Metals; Furniture; and Printing & Publishing.

Non-Manufacturing

For the next half year, non-manufacturing purchasing and supply executives who report that their organizations engage in exporting feel moderately optimistic concerning their export business. Of the 24 percent of non-manufacturing business survey respondents who export, 35 percent predict an increase (25 percent moderate and 10 percent substantial) over the next half-year. Five percent of members see a decrease in their exports (3 percent moderate and 2 percent substantial), and 60 percent anticipate no change in exports over the next half year. Industries expecting growth in export business are: Entertainment; Wholesale Trade; Business Services; Other Services**; and Communication.

Predicted Change in Export Business – Next Half Year
  Manufacturing Non-Manufacturing
  For 2001 For 2002 For 2001 For 2002
  First Half
of 2001
Predicted
Dec 2000
Second Half
of 2001
Predicted
May 2001
First Half
of 2002
Predicted
Dec 2001
First Half
of 2001
Predicted
Dec 2000
Second Half
of 2001
Predicted
May 2001
First Half
of 2002
Predicted
Dec 2001
Substantial Increase 3% 2% 4% 5% 7% 10%
Moderate Increase 39% 36% 39% 38% 25% 25%
No Change 47% 46% 41% 52% 66% 60%
Moderate Decrease 11% 15% 14% 3% 0% 3%
Substantial Decrease 0% 1% 2% 2% 2% 2%
Diffusion Index 65.5% 61% 63.5% 69% 65% 65%


IMPORT BUSINESS – Predicted Change for Next Half Year (First half of 2002)

Manufacturing

Purchasers expect continued growth in imports. Of the 82.5 percent of purchasers who import, 41 percent predict an increase in their imports over the next half year (34 percent moderate and 7 percent substantial), while 18 percent predict a decrease in imports of materials (13 percent moderate and 5 percent substantial). Less than half of survey members (41percent) expect no change in imports. Industries expecting above average growth in imports are: Apparel; Textiles; Furniture; Printing & Publishing; Miscellaneous*; Petroleum; Instruments & Photographic Equipment; Chemicals; Fabricated Metals; Electronic Components & Equipment; Food; Wood & Wood Products; and Industrial & Commercial Equipment & Computers.

Non-Manufacturing

Of the 44 percent of non-manufacturing purchasers who import, 25 percent predict an increase in their imports over the next half year (21 percent moderate and 4 percent substantial). Fourteen percent predict a decrease in imports of materials and services (11 percent moderate and 3 percent substantial). The remaining 61 percent of purchasers expect no change in imports over the next half year. Industries expecting growth in imports are: Insurance; Mining; Retail Trade; Business Services; Other Services**; and Wholesale Trade.

Predicted Change in Import Business – Next Half Year
  Manufacturing Non-Manufacturing
  For 2001 For 2002 For 2001 For 2002
  First Half
of 2001
Predicted
Dec 2000
Second Half
of 2001
Predicted
May 2001
First Half
of 2002
Predicted
Dec 2001
First Half
of 2001
Predicted
Dec 2000
Second Half
of 2001
Predicted
May 2001
First Half
of 2002
Predicted
Dec 2001
Substantial Increase 6% 8% 7% 5% 7% 4%
Moderate Increase 35% 32% 34% 33% 29% 21%
No Change 46% 47% 41% 48% 57% 61%
Moderate Decrease 12% 11% 13% 13% 7% 11%
Substantial Decrease 1% 2% 5% 1% 0% 3%
Diffusion Index 64% 63.5% 61.5% 62% 64.5% 55.5%


BUSINESS REVENUES

Business Revenues Comparison — 2001 vs. 2000

Manufacturing

Summarizing revenues for 2001, 35 percent say it was better then 2000, and that their nominal (before adjusting for inflation) revenues increased an average of 13.3 percent over 2000. Conversely, 51 percent say their nominal revenues decreased in 2001 by an average of 13.7 percent, and the remaining 14 percent indicate no change. Purchasing and supply executives indicate an overall net nominal decrease of 2.3 percent in business revenues for 2001 over 2000. This is lower than the 1 percent increase that was forecast in May 2001 for all of 2001, and significantly lower than the 4.4 percent predicted in December 2000.

Manufacturing Business Revenues — 2001 vs. 2000
  Predicted
Dec 2000
Nominal
% Change
Predicted
May 2001
Nominal
% Change
Reported
Dec 2001
Nominal
%Change
Higher 66% +9.2% 42% +10.9% 35% +13.3%
Same 18% NA 25% NA 14% NA
Lower 16% -11.4% 33% -10.8% 51% -13.7%
Net Average   +4.4%   +1.0%   -2.3%

Non-Manufacturing

Looking back on 2001, 49 percent of non-manufacturing purchasing and supply executives say it was better than 2000 and that their nominal (without adjusting for inflation) revenues increased by an average 12.8 percent over 2000. Conversely, 33 percent say their nominal revenues decreased in 2001 by an average 13.9 percent. Including the 18 percent who say revenues were about the same in both years, members say they experienced an overall net nominal increase of 1.6 percent for 2001 over 2000. This result is somewhat below the 4.3 percent forecast in May 2001 and the 6.9 percent forecast in December 2000.

Non-Manufacturing Business Revenues — 2001 vs. 2000
  Predicted
Dec 2000
Nominal
% Change
Predicted
May 2001
Nominal
% Change
Reported
Dec 2001
Nominal
%Change
Higher 71% +10.3% 59% +10.3% 49% +12.8%
Same 22% NA 25% NA 18% NA
Lower 7% -5.6% 16% -10.6% 33% -13.9%
Net Average   +6.9%   +4.3%   +1.6%


Business Revenues Prediction for 2002

Manufacturing

Purchasers forecast that 2002 will be better than 2001. Their expectations are less optimistic than those expressed for 2001 over 2000. The 59 percent of members forecasting better business in 2002 than in 2001 estimate an average nominal (before adjusting for inflation) increase of 9.8 percent in their companies' revenues. This compares to an average nominal decrease of 12.3 percent forecast by the 21 percent who predict worse business in 2002. Including the 20 percent who see no change in 2002, the forecast for overall net nominal growth in business revenues for 2002 over 2001 is 3.2 percent. The industries predicting an above average increase in nominal revenues in 2002 are: Wood & Wood Products; Apparel; Food; Furniture; Miscellaneous*; Industrial & Commercial Equipment & Computers; Fabricated Metals; and Rubber & Plastic Products.

Non-Manufacturing

Non-manufacturing purchasers forecast that business for 2002 will be improved over 2001 and by a larger margin than the 2001 increase over 2000. The 66 percent of members forecasting better business in 2002 than in 2001 estimate an average nominal (before adjusting for inflation) increase of 14.8 percent in their organizations' revenues. This compares to an average nominal decrease of 14.3 percent forecast by the 15 percent who predict worse business in 2002. Including the 19 percent who see no change in 2002, the forecasted overall net nominal growth in non-manufacturing business revenue in 2002 over 2001 is 7.6 percent (reported 2001 increase over 2000 was 1.6 percent). Industries expecting the largest percent increase in revenues in 2002 are: Business Services; Agriculture; Mining; Other Services**; Insurance; Wholesale Trade; Retail Trade; and Communication.

Business: 2002 vs. 2001 Revenues
  Manufacturing Non-Manufacturing
  Predicted
Dec 2001
Nominal
% Change
Predicted
Dec 2001
Nominal
% Change
Higher 59% +9.8% 66% +14.8%
Same 20% NA 19% NA
Lower 21% -12.3% 15% -14.3%
Net Average   +3.2%   +7.6%


BUSINESS COMPARISON

The First Half of 2002 with Last Half of 2001

Manufacturing

Looking ahead to the next half year, members are less optimistic when comparing their outlook for the first half of 2002 to the last half of 2001. While 34 percent predict it will be better, 26 percent predict it will be worse, and 40 percent expect no change. Compared to the diffusion index of one year ago (57.5 percent), members are less optimistic about prospects in the manufacturing sector for the first half-year (54 percent).

Non-Manufacturing

Looking ahead to the next half year, members are somewhat less optimistic than they were one year ago looking ahead to the first half of 2001. The current expectations diffusion index is 57 percent compared to 66 percent in December 2000. Comparing their expectations for the first half of 2002 to the last half of 2001, 36 percent of non-manufacturing purchasers expect it will be better, 22 percent anticipate it will be worse, and 42 percent predict no change.

Business: First Half 2002 vs. Last Half 2001
  Manufacturing Non-Manufacturing
  Predicted
Dec 2001
Predicted
Dec 2001
Better 34% 36%
Same 40% 42%
Worse 26% 22%
Diffusion Index 54% 57%

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

Manufacturing

Purchasing and supply executives are more optimistic about the second half of 2002 compared to the first half of the year. The proportion of members who forecast the second half of 2002 to be better than the first half is 59 percent, while 10 percent expect it to be worse and 31 percent expect no change.

Non-Manufacturing

Non-manufacturing purchasing and supply executives are somewhat more optimistic concerning the second half of 2002 compared to the first half of the year. The proportion of members who forecast the second half of 2002 to be better than the first half is 48 percent, while 11 percent expect it to be worse. An additional 41 percent of purchasers expect no change.

Business: 2nd Half 2002 vs. First Half 2002
  Manufacturing Non-Manufacturing
  Predicted
Dec 2001
Predicted
Dec 2001
Better 59% 48%
Same 31% 41%
Worse 10% 11%
Diffusion Index 74.5% 68.5%

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.


62nd Semiannual Economic Forecast -- Continued...