64th Semiannual Economic Forecast

FOR RELEASE: December 10, 2002

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015

ECONOMIC GROWTH TO GAIN STRENGTH IN 2003
Manufacturing Recovery Expected
Revenue to Grow 5.4%
Capital Spending Up 4.6%
Capacity Utilization at 79.2%
Non-Manufacturing Expected to be Stronger
Revenue Growth to be 5.7%
Capital Spending Down 0.4%
Capacity Utilization at 83.9%

(New York, NY) — Economic growth in the U.S. will strengthen in 2003, say the nation's purchasing and supply executives in their 64th Semiannual Economic Forecast. Expectations for 2003 are higher in both the manufacturing and non-manufacturing sectors, and both sectors are more optimistic about the coming year than they were one year ago for 2002. The overall prediction is for stronger economic growth after the slowdown experienced in 2002.

These projections are part of the forecast issued by the Business Survey Committee of the Institute for Supply Management™ (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 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 2003, 70 percent of survey respondents expect revenues to be greater in 2003 than in 2002. The panel of purchasing and supply executives expects a 5.4 percent net increase in overall revenues for 2003, compared to an actual increase of 1.1 percent increase reported for 2002. Manufacturing industries expecting the greatest improvement over 2002 are — listed in order — Electronic Components & Equipment; Chemicals; Wood & Wood Products; Transportation & Equipment; Instruments & Photographic Equipment; Apparel; Fabricated Metals; and Food.

"Manufacturing purchasing and supply executives are more optimistic about their organizations' prospects for the first half of 2003 and predict additional growth during the second half of 2003," said Ore. "At present, the sector continues to struggle as manufacturing is in its third consecutive month of decline as reported in the monthly Manufacturing ISM Report On Business®. Manufacturing seemingly has sufficient momentum to avoid a major downturn based on our recent monthly reports in which the sector has essentially moved sideways for five months. This forecast should be received as a source of optimism going into the new year."

In the sector, respondents report operating at 79.2 percent of their normal capacity, down slightly from 79.3 percent reported in May 2002. Purchasing and supply executives predict that capital expenditures will increase 4.6 percent in 2003, compared to the 6 percent decrease reported in December 2002. The survey respondents also forecast that they will continue to reduce their purchased inventory to sales ratio, while expecting manufacturing employment to decline by 0.6 percent. They also forecast an average 2.6 percent increase in overall labor and benefits costs for 2003. Manufacturing purchasers are predicting growth in exports and imports, with exports growing at a slightly slower rate while the rate of imports accelerates. They also expect the U.S. dollar to remain strong against the currencies of major trading partners.

They predict the prices they pay will increase 0.5 percent during the first four months of 2003 and will increase an additional 1.3 percent for the balance of 2003, resulting in only a moderate change in prices during the upcoming year. Respondents' major concerns are a weak economy, labor and benefits costs, terrorism / threat of war, energy costs and supply, and material shortages.

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 reasonable progress, but the data indicates there is still significant opportunity to improve productivity through technology.

Non-Manufacturing Summary

"A significant 70 percent of non-manufacturing purchasing and supply executives expect their 2003 revenues to be greater than in 2002. Overall, respondents currently expect a 5.7 percent net increase in overall revenues compared to a 0.9 percent increase reported for 2002," said Kauffman. Non-manufacturing industries expecting the greatest improvement over 2002 are — listed in order — Real Estate; Business Services; Transportation; Communication; and Construction.

Non-manufacturing purchasers report operating at 83.9 percent of their normal capacity, somewhat below the 85.6 percent reported in May 2002. They also forecast that they will increase their capacity to produce products and provide services by 4.6 percent during 2003. On the down side, they predict that employment will rise only 0.2 percent in the coming year and they expect capital expenditures to decrease by 0.4 percent, after a decrease of 2.6 percent reported for 2002. Their major economic concerns are labor and benefit costs, weakness in the economy, energy costs, inflation, and terrorism / threat of war.

Purchasers in non-manufacturing industries predict that the prices they pay for materials and services will increase by a relatively mild 0.9 percent during 2003, up a bit from 0.5 percent reported for 2002. They also forecast a 1.1 percent increase in their overall labor and benefit costs for 2003. They reported decreased profit margins in the second and third quarters of 2002 but expect margins to increase in the first four months of 2003. Members indicate that they have achieved an average 49 percent of potential benefits from application of technology to supply chains and that use of electronic commerce and e-procurement will be their number one means of improving supply chains in 2003. Overall they expect business in the second half of 2003 to be better than the first half, although they look for the first half of 2003 to be better than the second half of 2002.


OPERATING RATE

Manufacturing

Purchasing and supply executives report that their companies are currently operating at 79.2 percent of normal capacity. This is a slight decrease from May 2002 (79.3 percent) and continues a general trend that began in December 2000. Compared to the high reported in May 2000 (87.4 percent), this is a 8.2 percentage point decline. Recent monthly data from the Manufacturing ISM Report On Business® indicates the manufacturing sector has failed to grow on average for the past five months resulting in low capacity utilization. The following industries are operating at levels above 79.2 percent of capacity: Paper; Textiles; Glass, Stone & Aggregate; Printing & Publishing; Food; Wood & Wood Products; Chemicals; Primary Metals; Instruments & Photographic Equipment; and Transportation & Equipment.

Non-Manufacturing

Non-manufacturing purchasing and supply executives report that their organizations are currently operating at 83.9 percent of normal capacity. This is somewhat lower than the 85.6 percent reported in May 2002, and slightly above the 83.1 percent reported in December 2001. 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; Public Administration; Health Services; Entertainment; and Finance & Banking.

Operating Rate
  Manufacturing Non-Manufacturing
  Dec 2001 May 2002 Dec 2002 Dec 2001 May 2002 Dec 2002
90%+ 26% 29% 32% 49% 54% 49%
50%-89% 70% 67% 65% 48% 45% 48%
Below 50% 4% 4% 3% 3% 1% 3%
Est. Overall Average 77.5% 79.3% 79.2% 83.1% 85.6% 83.9%


PRODUCTION CAPACITY

Manufacturing

Production capacity in manufacturing report an increase of 1.4 percent in 2002 as 37 percent of purchasing and supply executives reported an average capacity increase of 11.2 percent, 18 percent reported decreases averaging 15.2 percent, and 45 percent reported no change. This compares to a reported capacity increase of 0.7 percent for all of 2001 and a predicted increase of 3.5 percent for 2002 made in December 2001. Expectations for 2003 are for an increase of 3.7 percent. The principal means of achieving increases in production capacity in 2002 were — in order of importance:

  1. More hours worked with existing personnel
  2. Additional plant and/or equipment
  3. Replaced equipment with technically advanced equipment
  4. More shifts worked with existing personnel
  5. Fewer plant shutdowns
Manufacturing Production Capacity Change
  For 2002 For 2002 For 2003
  Predicted
May 2002
Magnitude
of Change
Reported
Dec 2002
Magnitude
of Change
Predicted
Dec 2002
Magnitude
of Change
Higher 46% +12.5% 37% +11.2% 44% +10.6%
Same 42% NA 45% NA 44% NA
Lower 12% -15.2% 18% -15.2% 12% -8.3%
Net Average   +3.8%   +1.4%   +3.7%

Non-Manufacturing

The capacity to produce products or provide services in the non-manufacturing sector is expected to increase 4.6 percent during 2003. This compares to a reported rise of 2 percent for 2002. For 2003, 47 percent of non-manufacturing purchasers expect their capacity to increase by an average of 12.2 percent, and 5 percent of respondents foresee their capacity decreasing by an average of 20.3 percent. Including the 48 percent expecting no change in their capacity, an overall net average increase of 4.6 percent is predicted for 2003. The principal means of achieving increases in production or provision capacity in 2002 were — in order of importance:

  1. Additional personnel (permanent, temporary, or contract)
  2. More hours worked with existing personnel
  3. Replaced equipment with technically advanced equipment
  4. Additional plant and/or equipment
  5. More shifts worked with existing personnel
Non-Manufacturing Production or Provision Capacity Change
  For 2002 For 2002 For 2003
  Predicted
May 2002
Magnitude
of Change
Reported
Dec 2002
Magnitude
of Change
Predicted
Dec 2002
Magnitude
of Change
Higher 31% +11.8% 30% +15.6% 47% +12.2%
Same 62% NA 54% NA 48% NA
Lower 7% -16.2% 16% -16.6% 5% -20.3%
Net Average   +2.4%   +2.0%   +4.6%


CAPITAL EXPENDITURES — 2002 vs. 2001

Manufacturing

Purchasing and supply managers report capital expenditures in 2002 declined 6 percent when compared to 2001 levels. This is the first time since ISM began recording this number in 1988 that the reported change has been negative. Though less than robust, the showing for 2002 does exceed our members' expectations as they predicted a decrease of 8.7 percent for 2002 in the May 2002 forecast. The 23 percent of purchasers who reported increased capital expenditures in 2002 indicated an average increase of 30.6 percent, while the 43 percent who said their capital spending was reduced reported an average decrease of 30.3 percent. Thirty-four percent said they spent the same as in 2001. Industries showing the largest decreases in capital expenditures for 2002 — in order of percentage decrease — are: Industrial & Commercial Equipment & Computers; Transportation & Equipment; Rubber & Plastic Products; Fabricated Metals; and Chemicals.

Manufacturing Capital Expenditures — 2002 vs. 2001
  Predicted
Dec 2001
Magnitude
of Change
Predicted
May 2002
Magnitude
of Change
Reported
Dec 2002
Magnitude
of Change
Higher 23% +23.3 24% +38.1% 23% +30.6%
Same 36% NA 29% NA 34% NA
Lower 41% -47.6% 47% -37.5% 43% -30.3%
Net Average   -14.4%   -8.7%   -6.0%


Non-Manufacturing

Capital expenditures in non-manufacturing organizations in 2002 dropped 2.6 percent from the 2001 level. This was a greater reduction than the 1.5 percent decrease predicted in May 2002 but less than the 3 percent loss predicted in December 2001. It is a reversal from the actual increase of 0.6 percent reported for 2001 in December 2001. The 33 percent of non-manufacturing purchasing and supply executives who reported an increase in capital expenditures in 2002 indicated an average increase of 15.4 percent, while the 29 percent who said their capital spending was reduced reported an average decrease of 26.1 percent. Including the 38 percent who said they spent the same as in 2001, the overall net average decrease is 2.6 percent. Industries indicating the largest decreases — in order of percentage decrease — in capital spending in 2002 are: Communication; Insurance; Business Services; Finance & Banking; and Entertainment.

Non-Manufacturing Capital Expenditures — 2002 vs. 2001
  Predicted
Dec 2001
Magnitude
of Change
Predicted
May 2002
Magnitude
of Change
Reported
Dec 2002
Magnitude
of Change
Higher 23% +17.8% 32% +21.5% 33% +15.4%
Same 41% NA 33% NA 38% NA
Lower 36% -19.5% 35% -24.0% 29% -26.1%
Net Average   -3.0%   -1.5%   -2.6%


PREDICTED CAPITAL EXPENDITURES — 2003 vs. 2002

Manufacturing

Looking forward to 2003, purchasing and supply executives are expecting a significant turnaround in capital expenditures compared to 2002. The 38 percent of members expecting to spend more on capital expenditures in 2003 predict an average increase of 27.3 percent. However, 27 percent expect a decrease averaging 21.3 percent. Considering the 35 percent who expect to spend the same on capital expenditures in both years, the overall net average change forecast for 2003 is an increase of 4.6 percent. Eleven of the 20 industries that expect higher capital expenditures in 2003 are: Food; Textiles; Wood & Wood Products; Rubber & Plastic Products; Primary Metals; Transportation & Equipment; Printing & Publishing; Apparel; Furniture; Paper; and Fabricated Metals.

Non-Manufacturing

Looking ahead, non-manufacturing purchasing and supply executives are expecting to decrease their level of capital expenditures in 2003 compared to 2002 by 0.4 percent. The 38 percent of members expecting to spend more predict an average increase of 18.7 percent. An additional 33 percent anticipate a decrease averaging 23.7 percent. Considering the 29 percent who expect to spend the same on capital expenditures in 2003 as in 2002, the overall net average change forecast for 2003 is a decrease of 0.4 percent. Industries expecting the largest percentage decreases — in order of percentage decrease — in capital expenditures in 2003 compared to 2002 are: Agriculture; Insurance; Entertainment; Transportation; and Finance & Banking.

Predicted Capital Expenditures 2003 vs. 2002
  Manufacturing Non-Manufacturing
  Predicted
Dec 2002
Magnitude
of Change
Predicted
Dec 2002
Magnitude
of Change
Higher 38% +27.3% 38% +18.7%
Same 35% NA 29% NA
Lower 27% -21.3% 33% -23.7%
Net Average   +4.6%   -0.4%


PRICES — Changes Between End of 2001 and End of 2002

Manufacturing

After an initial forecast in December 2001 of a slight decrease in prices paid during 2002, purchasers stated their expectation of a slight increase (0.8 percent) in ISM's May 2002 report. They now report an expected decrease of 0.6 percent for all of 2002. The 34 percent who say their prices are higher now than at the end of 2001 report an average increase of 5.6 percent, while the 50 percent who report lower prices averaged a 5.1 percent decrease. The remaining 16 percent indicate no change for all of 2002.

Manufacturing Price Changes Between End of 2001 and End of 2002
  Predicted
Dec 2001
Magnitude
of Change
Predicted
May 2002
Magnitude
of Change
Reported
Dec 2002
Magnitude
of Change
Higher 35% +4.4% 43% +7.0% 34% +5.6%
Same 20% NA 14% NA 16% NA
Lower 45% -5.2% 43% -5.0% 50% -5.1%
Net Average   -0.8%   +0.8%   -0.6%

Non-Manufacturing

Prices paid by non-manufacturing industries in 2002 are reported to have increased by 0.5 percent compared to their level at the end of 2001. This is a decrease from the 1.6 percent rise predicted in May 2002 and is the same as the 0.5 percent increase predicted for 2002 in December 2001. The 47 percent of non-manufacturing purchasing and supply executives who say their prices are higher now than at the end of 2001 report an average increase of 5 percent, while the 23 percent who report lower prices indicate an average decrease of 8.2 percent. After including the 30 percent who indicate no change, the purchasers reported a net average overall price increase of 0.5 percent for all of 2002.

Non-Manufacturing Price Changes Between End of 2001 and End of 2002
  Predicted
Dec 2001
Magnitude
of Change
Predicted
May 2002
Magnitude
of Change
Reported
Dec 2002
Magnitude
of Change
Higher 46% +3.9% 63% +4.5% 47% +5.0%
Same 27% NA 20% NA 30% NA
Lower 27% -4.8% 17% -7.6% 23% -8.2%
Net Average   +0.5%   +1.6%   +0.5%


PRICES — Predicted Changes Between End of 2002 and April 2003

Manufacturing

Thirty-eight percent of purchasing and supply managers expect the prices they pay to increase in the first part of 2003 by an average of 4.1 percent. At the same time, 34 percent anticipate decreases averaging 3.2 percent. Including the 28 percent who expect no change in prices in the first four months of 2003, purchasers expect the net average overall price change to increase 0.5 percent for the period. Industries predicting above average increases in prices paid for the first part of 2003 are: Glass, Stone & Aggregate; Food; Rubber & Plastic Products; Wood & Wood Products; Printing & Publishing; Chemicals; Textiles; Transportation & Equipment; and Primary Metals.

Non-Manufacturing

Forty-seven percent of non-manufacturing purchasers expect the prices they pay to increase 3.6 percent in the first part of 2003. Also, 17 percent anticipate price decreases averaging 5.8 percent. Including the 36 percent who expect no change in prices in the first four months of 2003, the net average overall price change is anticipated to be an increase of 0.7 percent for the period. Industries predicting the largest increase in prices they pay in the first part of 2003 are: Insurance; Wholesale Trade; Public Administration; Real Estate; and Retail Trade.

Prices — Predicted Changes Between End of 2002 and April 2003
  Manufacturing Non-Manufacturing
  Predicted
Dec 2002
Magnitude
of Change
Predicted
Dec 2002
Magnitude
of Change
Higher 38% +4.1% 47% +3.6%
Same 28% NA 36% NA
Lower 34% -3.2% 17% -5.8%
Net Average   +0.5%   +0.7%


PRICES — Predicted Changes Between End of 2003 and End of 2002

Manufacturing

The forecast is for significant price movement in 2003 with 50 percent of the respondents expecting an average price increase of 6.4 percent, while 30 percent expect an average decline of 4.6 percent. The remaining 20 percent expect no change in their average for the coming year. The net average of the responses indicates an increase of 1.8 percent overall by the end of 2003. Industries expecting to pay the highest overall prices by the end of 2003 are: Textiles; Electronic Components & Equipment; Food; Wood & Wood Products; Paper; Printing & Publishing; and Fabricated Metals.

Non-Manufacturing

Looking out to the end of 2003, 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 0.9 percent. Fifty-nine percent of purchasers anticipate price increases with an average increase of 4.8 percent. Eighteen percent of purchasers expect decreased prices with an average reduction of 10.4 percent. Twenty-three percent of members do not expect prices to change, resulting in a 0.9 percent overall average price increase for the year. Industries expecting the highest rates of price increases by the end of 2003 are: Business Services; Wholesale Trade; Mining; Insurance; and Finance & Banking.

Predicted Price Changes Between End of 2003 and End of 2002
  Manufacturing Non-Manufacturing
  Predicted
Dec 2002
Magnitude
of Change
Predicted
Dec 2002
Magnitude
of Change
Higher 50% +6.4% 59% +4.8%
Same 20% NA 23% NA
Lower 30% -4.6% 18% -10.4%
Net Average   +1.8%   +0.9%


LABOR AND BENEFIT COSTS — Predicted Rate Change End of 2003 vs. End of 2002

Manufacturing

Purchasing and supply executives' expectation for change in overall labor and benefit costs for 2003 (2.6 percent) are higher than they were in December 2001 (2.3 percent) for 2002. Seventy-eight percent of members expect increased labor and benefit costs and expect them to grow by an average of 3.7 percent for all of 2003, while the 6 percent forecasting lower costs see them decreasing by an average of 4.4 percent. Considering the 16 percent that believe costs will remain stable, the expected overall net rate of increase is 2.6 percent between the end of 2002 and the end of 2003. Industries expecting to pay 2.6 percent or higher are: Textiles; Electronic Components & Equipment; Primary Metals; Industrial & Commercial Equipment & Computers; Food; Wood & Wood Products; Furniture; Paper; Miscellaneous*; and Fabricated Metals.

Non-Manufacturing

Purchasing and supply executives' expectations for change in labor and benefit costs for non-manufacturing industries in 2003 are lower than they were a year ago for 2002. Sixty-three percent of respondents expect such costs to increase by an average 4 percent. Another 9 percent of purchasers expect labor and benefit costs to shrink by an average 14.7 percent. Including the 28 percent who believe costs will remain stable during 2003, the expected overall net average rate of increase is 1.1 percent. The forecast in December 2001 for 2002 was an increase of 2 percent. Industries expecting the largest increases in labor and benefit costs in 2003 over 2002 are: Public Administration; Insurance; Finance & Banking; Communication; and Retail Trade.

Labor and Benefit Costs — Predicted Rate Change End of 2003 vs. End of 2002
  Manufacturing Non-Manufacturing
  Predicted
Dec 2002
Magnitude
of Change
Predicted
Dec 2002
Magnitude
of Change
Higher 78% 3.7% 63% +4.0%
Same 16% NA 28% NA
Lower 6% -4.4% 9% -14.7%
Net Average   +2.6%   +1.1%


EMPLOYMENT

Manufacturing

ISM's Manufacturing Business Survey Committee members forecast that manufacturing employment will decline 0.6 percent in 2003, with 29 percent expecting employment to be 6 percent higher. This is compared to the 34 percent who predict employment to be lower by 6.9 percent. The remaining 37 percent of members expect their employment levels to be unchanged in 2003. Industries reporting 1 percent or greater growth in employment are: Wood & Wood Products and Textiles. On the opposite side of the spectrum, the following industries predict a decline in employment of 1 percent or greater: Rubber & Plastic Products; Primary Metals; Furniture; Chemicals; and Paper.

Non-Manufacturing

ISM's Non-Manufacturing Business Survey Committee members report that non-manufacturing employment has decreased 3.3 percent since April 2002 and forecast that employment will increase only 0.2 percent in 2003. For 2003, 32 percent expect greater numbers of workers, 22 percent of members anticipate fewer workers, and 46 percent expect their employment levels to be unchanged from 2002 levels. Industries anticipating the greatest increase in their employment in 2003 are: Business Services; Communication; Retail Trade; Transportation; and Finance & Banking.

Predicted Change in Overall Employment
  Manufacturing Non-Manufacturing
  Predicted
For 2003
Dec 2002
Nominal
% Change
Predicted
For 2003
Dec 2002
Nominal
% Change
Higher 29% +6.0% 32% +8.2%
Same 37% NA 46% NA
Lower 34% -6.9% 22% -10.5%
Net Average   -0.6%   +0.2%
Diffusion Index   47.5%   55.0%

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 2003)

Manufacturing

The responses for this semiannual report indicate purchasers are feeling optimistic about new export orders for the first half of 2003. This is contrary to the recent ISM New Export Orders Index in the monthly Manufacturing ISM Report On Business® which has shown a slowing rate of growth in new export orders. Of the 80 percent of members who export, 49 percent predict an increase (48 percent moderate and 1 percent substantial) over the next half-year. Presently, 12 percent (10 percent moderate, 2 percent substantial) see a decrease in their exports and 39 percent anticipate no change in exports over the next half-year. Industries expecting above average growth in exports are: Furniture; Textiles; Apparel; Miscellaneous*; Instruments & Photographic Equipment; Electronic Components & Equipment; Paper; Food; 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 20 percent of non-manufacturing business survey respondents who export, 38 percent predict an increase (38 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 59 percent anticipate no change in exports over the next half year. Industries expecting growth in export business are: Other Services**; Wholesale Trade; Mining; and Retail Trade.

Predicted Change in Export Business — Next Half Year
  Manufacturing Non-Manufacturing
  For 2002 For 2003 For 2002 For 2003
  First Half
of 2002
Predicted
Dec 2001
Second Half
of 2002
Predicted
May 2002
First Half
of 2003
Predicted
Dec 2002
First Half
of 2002
Predicted
Dec 2001
Second Half
of 2002
Predicted
May 2002
First Half
of 2003
Predicted
Dec 2002
Substantial Increase 4% 4% 1% 10% 0% 0%
Moderate Increase 39% 45% 48% 25% 29% 38%
No Change 41% 41% 39% 60% 68% 59%
Moderate Decrease 14% 9% 10% 3% 3% 3%
Substantial Decrease 2% 1% 2% 2% 0% 0%
Diffusion Index 63.5% 69.5% 68.5% 65% 63% 67.5%


IMPORT BUSINESS — Predicted Change for Next Half Year (First half of 2003)

Manufacturing

Purchasers expect continued growth in imports in the first half of 2003. Of the 84 percent of purchasers who import, 52 percent predict an increase in their imports over the next half year (40 percent moderate and 12 percent substantial), while 6 percent predict a decrease in imports of materials (5 percent moderate and 1 percent substantial). Less than half of survey members (42 percent) expect no change in imports. Industries expecting above average growth in imports are: Electronic Components & Equipment; Instruments & Photographic Equipment; Fabricated Metals; Furniture; Miscellaneous*; Glass, Stone & Aggregate; Food; Industrial & Commercial Equipment & Computers; Printing & Publishing; Wood & Wood Products; and Apparel.

Non-Manufacturing

Of the 34 percent of non-manufacturing purchasers who import, 40 percent predict an increase in their imports over the next half year (36 percent moderate and 4 percent substantial). Four percent predict a decrease in imports of materials and services (2 percent moderate and 2 percent substantial). The remaining 56 percent of purchasers expect no change in imports over the next half year. Industries expecting growth in imports are: Other Services**; Entertainment; Wholesale Trade; Health Services; Retail Trade; and Business Services.

Predicted Change in Import Business — Next Half Year
  Manufacturing Non-Manufacturing
  For 2002 For 2003 For 2002 For 2003
  First Half
of 2002
Predicted
Dec 2001
Second Half
of 2002
Predicted
May 2002
First Half
of 2003
Predicted
Dec 2002
First Half
of 2002
Predicted
Dec 2001
Second Half
of 2002
Predicted
May 2002
First Half
of 2003
Predicted
Dec 2002
Substantial Increase 7% 10% 12% 4% 0% 4%
Moderate Increase 34% 41% 40% 21% 26% 36%
No Change 41% 37% 42% 61% 61% 56%
Moderate Decrease 13% 9% 5% 11% 11% 2%
Substantial Decrease 5% 3% 1% 3% 2% 2%
Diffusion Index 61.5% 69.5% 73.0% 55.5% 56.5% 68.0%


BUSINESS REVENUES

Business Revenues Comparison — 2002 vs. 2001

Manufacturing

Summarizing revenues for 2002, 50 percent say it was better than 2001, and that their nominal (before adjusting for inflation) revenues increased an average of 10.1 percent over 2001. Conversely, 35 percent say their nominal revenues decreased in 2002 by an average of 11.4 percent, and the remaining 15 percent indicate no change. Purchasing and supply executives indicate an overall net nominal increase of 1.1 percent in business revenues for 2002 over 2001. This is lower than the 2.8 percent increase that was forecast in May 2002 for all of 2002, and significantly lower than the 3.2 percent predicted in December 2001 for all of 2002.

Manufacturing Business Revenues — 2002 vs. 2001
  Predicted
Dec 2001
Nominal
% Change
Predicted
May 2002
Nominal
% Change
Reported
Dec 2002
Nominal
% Change
Higher 59% +9.8% 58% +11.8% 50% +10.1%
Same 20% NA 17% NA 15% NA
Lower 21% -12.3% 25% -15.6% 35% -11.4%
Net Average   +3.2%   +2.8%   +1.1%

Non-Manufacturing

Looking back on 2002, 48 percent of non-manufacturing purchasing and supply executives say it was better than 2001 and that their nominal (without adjusting for inflation) revenues increased by an average 11.6 percent over 2001. Conversely, 28 percent say their nominal revenues decreased in 2002 by an average 16.8 percent. Including the 24 percent who say revenues were about the same in both years, members say they experienced an overall net nominal increase of 0.9 percent for 2002 over 2001. This result is somewhat below the 2.1 percent forecast in May 2002 and significantly lower than the 7.6 percent forecast in December 2001.

Non-Manufacturing Business Revenues — 2002 vs. 2001
  Predicted
Dec 2001
Nominal
% Change
Predicted
May 2002
Nominal
% Change
Reported
Dec 2002
Nominal
% Change
Higher 66% +14.8% 56% +9.1% 48% +11.6%
Same 19% NA 22% NA 24% NA
Lower 15% -14.3% 22% -13.4% 28% -16.8%
Net Average   +7.6%   +2.1%   +0.9%

Business Revenues Prediction for 2003

Manufacturing

Purchasers forecast that 2003 will be better than 2002. Their expectations are more optimistic than they have been since May of 2000. The 70 percent of members forecasting better business in 2003 than in 2002 estimate an average nominal (before adjusting for inflation) increase of 9.2 percent in their companies' revenues. This compares to an average nominal decrease of 9.1 percent forecast by the 11 percent who predict worse business in 2003. Including the 19 percent who see no change in 2003, the forecast for overall net nominal growth in business revenues for 2003 over 2002 is 5.4 percent. The industries predicting a greater than 4 percent increase in nominal revenues in 2003 are: Electronic Components & Equipment; Chemicals; Wood & Wood Products; Transportation & Equipment; Instruments & Photographic Equipment; Apparel; Fabricated Metals; and Food.

Non-Manufacturing

Non-manufacturing purchasers forecast that business for 2003 will be improved over 2002 and by a much larger margin than the reported 2002 increase over 2001. The 70 percent of members forecasting better business in 2003 than in 2002 estimate an average nominal (before adjusting for inflation) increase of 11.4 percent in their organizations' revenues. This compares to an average nominal decrease of 16.1 percent forecast by the 13 percent who predict worse business in 2003. Including the 17 percent who see no change in 2003, the forecasted overall net nominal growth in non-manufacturing business revenue in 2003 over 2002 is 5.7 percent (reported 2002 increase over 2001 is 0.9 percent). Industries expecting the largest percent increase in revenues in 2003 are: Real Estate; Business Services; Transportation; Communication; and Construction.

Business: 2003 vs. 2002 Revenues
  Manufacturing Non-Manufacturing
  Predicted
Dec 2002
Nominal %
Change
Predicted
Dec 2002
Nominal %
Change
Higher 70% +9.2% 70% +11.4%
Same 19% NA 17% NA
Lower 11% -9.1% 13% -16.1%
Net Average   +5.4%   +5.7%


BUSINESS COMPARISON

The First Half of 2003 with Last Half of 2002

Manufacturing

Looking ahead to the next half year, members are optimistic when comparing their outlook for the first half of 2003 to the last half of 2002. While 41 percent predict it will be better, 18 percent predict it will be worse, and 41 percent expect no change. Compared to the diffusion index of one year ago (54 percent), members are more optimistic about prospects in the manufacturing sector for the first half-year (61.5 percent).

Non-Manufacturing

Looking ahead to the next half year, members are somewhat more optimistic than they were one year ago looking ahead to the first half of 2002. The current diffusion index is 65.5 percent compared to 56.9 percent in December 2001. Comparing their expectations for the first half of 2003 to the last half of 2002, 42 percent of non-manufacturing purchasers expect it will be better, 11 percent anticipate it will be worse, and 47 percent predict no change.

Business — First Half 2003 vs. Last Half 2002
  Manufacturing Non-Manufacturing
  Predicted
Dec 2002
Predicted
Dec 2002
Better 41% 42%
Same 41% 47%
Worse 18% 11%
Diffusion Index 61.5% 65.5%

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 2003 with the First Half of 2003

Manufacturing

Purchasing and supply executives are more optimistic about the second half of 2003 compared to the first half of the year. The proportion of members who forecast the second half of 2003 to be better than the first half is 54 percent, while 7 percent expect it to be worse and 39 percent expect no change.

Non-Manufacturing

Non-manufacturing purchasing and supply executives are somewhat more optimistic concerning the second half of 2003 compared to the first half of the year. The proportion of members who forecast the second half of 2003 to be better than the first half is 53 percent, while 7 percent expect it to be worse. An additional 40 percent of purchasers expect no change.

Business — Second Half 2003 vs. First Half 2003
  Manufacturing Non-Manufacturing
  Predicted
Dec 2002
Predicted
Dec 2002
Better 54% 53%
Same 39% 40%
Worse 7% 7%
Diffusion Index 73.5% 73%

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.


64th Semiannual Economic Forecast -- Continued...