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68th Semiannual Economic Forecast

FOR RELEASE: December 8, 2004

Contact: Terri Tracey
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, ext. 3071
  E-mail: ttracey@ism.ws 

ECONOMIC GROWTH TO CONTINUE IN 2005
Manufacturing Expansion Continues
Revenue to Grow 7.8%
Capital Spending Up 1.6%
Capacity Utilization at 83%
Non-Manufacturing to Maintain Strength
Revenue Growth to be 5.9%
Capital Spending Up 1.8%
Capacity Utilization at 88.2%

(Tempe, AZ) — Economic growth in the U.S. will strengthen in 2005, say the nation's purchasing and supply executives in their 68th Semiannual Economic Forecast. Expectations for 2005 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 2004. The overall prediction is for economic growth to continue at a relatively strong level in 2005.

These projections are part of the forecast issued by the Business Survey Committee of the Institute for Supply Management™ (ISM). The forecast was released 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

Expectations for 2005 are high as 75 percent of survey respondents expect revenues to be greater in 2005 than in 2004. The panel of purchasing and supply executives expects a 7.8 percent net increase in overall revenues for 2005, compared to an increase of 8.3 percent increase reported for 2004. Manufacturing industries expecting the greatest improvement over 2004 are — listed in order — Miscellaneous*; Glass, Stone & Aggregate; Fabricated Metals; Primary Metals; Instruments & Photographic Equipment; Transportation & Equipment; Apparel; and Electronic Components & Equipment.

"Manufacturing purchasing and supply executives are optimistic about their organizations' prospects for the first half, and predict additional growth during the second half of 2005," said Ore. "While 2004 has been a particularly strong year overall, it has presented challenges with regard to inflation in manufacturing costs. At present, the sector continues to recover from major influences that stalled growth early in the millennium. Manufacturing seemingly has reasonable momentum at this point, with continuing strength in new orders and production, and is in its 18th consecutive month of growth as reported in the monthly Manufacturing ISM Report On Business®."

In the sector, respondents report operating at 83 percent of their normal capacity, down from 85.6 percent reported in April 2004. Purchasing and supply executives predict that capital expenditures will increase only 1.6 percent in 2005, compared to the 15.1 percent increase reported for 2004. Survey respondents also forecast that they will increase their purchased inventory to sales ratio in 2005. Manufacturers have an expectation that employment in the sector will grow by 1.6 percent, while labor and benefits costs are expected to increase an average of 3.4 percent. Manufacturing purchasers are predicting growth in exports and imports. They also expect the U.S. dollar to strengthen somewhat against currencies of major trading partners.

They predict the prices they pay will increase 4.3 percent during the first four months of 2005, and will increase an additional 0.1 percent for the balance of 2005. Respondents' major concerns are: prices and inflation; energy price increases; weak economy; effects of war and geopolitical concerns; and labor, benefits and healthcare costs, including labor shortages.

A special question was asked to determine the respondents' progress in achieving efficiency from the application of technology to supply management. While a few companies rate themselves as being almost finished, 82 percent are less than three-fourths complete in achieving efficiency from the application of technology, while 47 percent indicate they are less than 50 percent complete. Members expect to realize supply chain improvements through supplier relationship enhancements; process, tools, systems, and software improvements; and the application of electronic commerce.

Non-Manufacturing Summary

Sixty-six percent of non-manufacturing purchasing and supply executives expect their 2005 revenues to be greater than in 2004. They currently expect a 5.9 percent net increase in overall revenues compared to a 6.4 percent increase reported for 2004. Non-manufacturing industries expecting the greatest improvement over 2004 are — listed in order — Transportation; Business Services; Entertainment; Mining; and Other Services**.

"Non-manufacturing purchasers report operating at 88.2 percent of their normal capacity, somewhat above the 85.4 percent reported in April 2004 and the 85.6 percent reported in December 2003. They have a slightly higher level of optimism about the next 12 months than they had in April and are much more optimistic than they were one year ago in December 2003," said Kauffman. "While they forecast that their capacity to produce products and provide services will rise by 4.4 percent during 2005, capital expenditures are expected to increase by only 1.8 percent. This is a drop from the 4.5 percent increase reported for 2004. Non-manufacturers also predict that their employment will grow by 3.1 percent during 2005. Their major economic concerns are: energy price increases; prices and inflation; labor, benefits and healthcare costs, including labor shortages; weak economy; and effects of war and geopolitical concerns."

Purchasers in non-manufacturing industries expect that the prices they pay for materials and services will increase by a significant 3.6 percent during 2005. They also forecast a 3.7 percent increase in their overall labor and benefit costs for 2005. Profit margins are reported to have increased in the period since April 2004, and members expect them to rise additionally in the period November 2004 to April 2005. Members indicate that they have achieved an average 50 percent of potential benefits from application of technology to supply chains and that application of e-commerce; process, tools, systems and software improvements; and increased consolidation, centralization and control of supply management activities are their major means of improving supply chains in 2005. Overall they expect business in the first half of 2005 to be better than the second half of 2004, and the second half of 2005 to be better than the first half of the year.


OPERATING RATE

Manufacturing

Purchasing and supply executives report that their companies are currently operating at 83 percent of normal capacity. This is a decrease from May 2004 (85.6 percent) and is greater than the rate of 80.1 percent reported in December 2003. It is also significantly less than the nine-year high reported in May 2000 (87.4 percent). Recent monthly data from the Manufacturing ISM Report On Business® indicates the manufacturing sector has grown for 18 consecutive months. The following 13 industries are operating at or above the average capacity rate of 83 percent: Apparel; Miscellaneous*; Glass, Stone & Aggregate; Food; Paper; Printing & Publishing; Wood & Wood Products; Instruments & Photographic Equipment; Textiles; Electronic Components & Equipment; Furniture; Industrial & Commercial Equipment & Computers; and Primary Metals.

Non-Manufacturing

Non-manufacturing purchasing and supply executives report that their organizations are currently operating at 88.2 percent of normal capacity. This is somewhat higher than both the 85.4 percent reported in April 2004 and the 85.6 percent reported in December 2003. Considering production capacity increases reported in the following section of this forecast, this indicates that non-manufacturing industries are continuing to add capacity but also find it necessary to increase their utilization of capacity at the same time. The following industries are operating at capacity levels above the 88.2 percent average: Legal Services; Utilities; Real Estate; Public Administration; Mining; Other Services**; Agriculture; Health Services; and Transportation.

Operating Rate
  Manufacturing Non-Manufacturing
  Dec 2003 April 2004 Dec 2004 Dec 2003 April 2004 Dec 2004
90%+ 34% 48.7% 42.2% 53% 48% 58%
50%-89% 62% 48.2% 54.7% 46% 49% 41.3%
Below 50% 4% 3.1% 3.1% 1% 3% 0.7%
Est. Overall Average 80.1% 85.6% 83% 85.6% 85.4% 88.2%


PRODUCTION CAPACITY — December 2004

Manufacturing

Production capacity in manufacturing increased 4 percent in 2004 as 52 percent of purchasing and supply executives reported an average capacity increase of 11.6 percent, 9 percent reported decreases averaging 23.6 percent, and 39 percent reported no change. This compares to a reported capacity increase of 1.2 percent for all of 2003, and a predicted increase of 3.8 percent for 2004 made in December 2003. The industries reporting additions of 4 percent or higher to their capacity in 2004 are: Wood & Wood Products; Industrial & Commercial Equipment & Computers; Instruments & Photographic Equipment; Food; Primary Metals; Apparel; Electronic Components & Equipment; Fabricated Metals; and Rubber & Plastic Products. Expectations for 2005 are for an increase of 5.6 percent.

Manufacturing Production Capacity
  For 2004 For 2004 For 2005
  Predicted
April 2004
Magnitude
of Change
Reported
Dec 2004
Magnitude
of Change
Predicted
Dec 2004
Magnitude
of Change
Higher 53% +12.1% 52% +11.6% 51% +13.8%
Same 38% NA 39% NA 43% NA
Lower 9% -12.8% 9% -23.6% 6% -23.9%
Net Average   +5.2%   +4.0%   +5.6%


The principal means of achieving increases in production capacity in 2004 were (in order of importance):

  1. More hours worked with existing personnel
  2. Additional plant and/or equipment
  3. Additional personnel (permanent, temporary or contract)
  4. Replaced equipment with technically advanced equipment
  5. More shifts worked with existing personnel
Non-Manufacturing

The capacity to produce products or provide services in the non-manufacturing sector increased 3.1 percent during 2004. This equals the 3.1 percent increase reported in December 2003 for 2003, and is less than the prediction in April 2004 of a 4.2 percent increase in 2004. For 2004, 39 percent of non-manufacturing purchasers indicate increases averaging 9.3 percent, and 4 percent of respondents indicate decreases averaging 13 percent. Fifty-seven percent see no change in their capacity. The industries reporting additions of more than 3 percent to their capacity in 2004 are: Mining; Utilities; Other Services**; Business Services; Construction; Communication; and Health Services. Expectations for 2005 are for an increase of 4.4 percent.

Non-Manufacturing Production or Provision Capacity
  For 2004 For 2004 For 2005
  Predicted
April 2004
Magnitude
of Change
Reported
Dec 2004
Magnitude
of Change
Predicted
Dec 2004
Magnitude
of Change
Higher 40% +11.9% 39% +9.3% 46% +10.0%
Same 55% NA 57% NA 51% NA
Lower 5% -8.5% 4% -13% 3% -12.3%
Net Average   +4.2%   +3.1%   +4.4%


The principal means of achieving increases in production capacity in 2004 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

CAPITAL EXPENDITURES — 2004 vs. 2003

Manufacturing

Purchasing and supply managers report capital expenditures in 2004 rose 15.1 percent when compared to 2003 levels. The report for 2004 significantly exceeds panel members' expectations as they predicted an increase of 6 percent for 2004 in the April 2004 forecast. The 42 percent of purchasers who reported increased capital expenditures in 2004 indicated an average increase of 47.8 percent, while the 16 percent who said their capital spending was reduced reported an average decrease of 34 percent. Forty-two percent said they spent the same in 2004 as in 2003. Industries showing above average increases in capital expenditures for 2004 — in order of percentage increase — are: Primary Metals; Wood & Wood Products; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; and Glass, Stone & Aggregate.

Non-Manufacturing

Non-manufacturing purchasing and supply executives report their level of capital expenditures in 2004 compared to 2003 rose by 4.5 percent. This is slightly less than the 4.9 percent increase predicted by members in April 2004, but is significantly stronger than the 2.2 percent increase reported for 2003 one year ago. Forty-four percent of members report increases averaging 17.6 percent. An additional 12 percent report decreases averaging 24.8 percent. However, another 44 percent indicate they spent the same on capital expenditures in 2004 as in 2003. Industries experiencing above average increases in capital expenditures in 2004 are: Communication; Utilities; Insurance; Finance & Banking; Health Services; Business Services; Wholesale Trade; and Entertainment.

Capital Expenditures 2004 vs. 2003
  Manufacturing Non-Manufacturing
  Predicted
April 2004
Reported
Dec 2004
Magnitude
of Change
Predicted
April 2004
Reported
Dec 2004
Magnitude
of Change
Higher 39% 42% +47.8% 46% 44% +17.6%
Same 40% 42% NA 37% 44% NA
Lower 21% 16% -34.0% 17% 12% -24.8%
Net Average +6%   +15.1% +4.9%   +4.5%


PREDICTED CAPITAL EXPENDITURES — 2005 vs. 2004

Manufacturing

Looking forward to 2005, purchasing and supply executives are quite pessimistic with regard to expectations for capital expenditures compared to 2004. The 42 percent of members expecting to spend more on capital expenditures in 2005 predict an average increase of 23.4 percent. However, 21 percent expect a decrease averaging 38 percent. Considering the 37 percent who expect to spend the same on capital expenditures in both years, the overall net average change forecast for 2004 is an increase of 1.6 percent. Twelve industries expect higher than average capital expenditures in 2005: Leather; Miscellaneous*; Food; Rubber & Plastic Products; Wood & Wood Products; Primary Metals; Glass, Stone & Aggregate; Paper; Industrial & Commercial Equipment & Computers; Instruments & Photographic Equipment; Transportation & Equipment; and Apparel.

Non-Manufacturing

Looking out into 2005, non-manufacturing purchasing and supply executives are expecting a much lower increase in capital expenditures than they are reporting for 2004. The 42 percent of members expecting to spend more predict an average increase of 14.2 percent. An additional 15 percent anticipate a decrease averaging 26.1 percent. Forty-three percent expect to spend the same on capital expenditures in 2005 as in 2004. Industries expecting above average increases in capital expenditures in 2005 are: Entertainment; Finance & Banking; Mining; Communication; Insurance; Business Services; Health Services; Wholesale Trade; and Other Services**.

Predicted Capital Expenditures 2005 vs. 2004
  Manufacturing Non-Manufacturing
  Predicted
Dec 2004
Magnitude
of Change
Predicted
Dec 2004
Magnitude
of Change
Higher 42% +23.4% 42% +14.2%
Same 37% NA 43% NA
Lower 21% -38.0% 15% -26.1%
Net Average   +1.6%   +1.8%


PRICES — Changes Between End of 2003 and End of 2004

Manufacturing

After an initial forecast in December 2003 of a slight increase in prices paid during 2004, purchasers stated their expectation of a larger increase (7.6 percent) in ISM's April 2004 report. They now report an expected increase of 11.2 percent for all of 2004. The 88 percent who say their prices are higher now than at the end of 2003 report an average increase of 13.2 percent, while the 7 percent who report lower prices averaged a 5.3 percent decrease. The remaining 5 percent indicate no change for all of 2004. The industries reporting the highest rates of price increases in 2004 are: Primary Metals; Fabricated Metals; Apparel; Transportation & Equipment; and Textiles.

Manufacturing Price Changes Between End of 2003 and End of 2004
  Predicted
Dec 2003
Magnitude
of Change
Predicted
April 2004
Magnitude
of Change
Reported
Dec 2004
Magnitude
of Change
Higher 56% +4.7% 81% +10.1% 88% +13.2%
Same 18% NA 8% NA 5% NA
Lower 26% -5.0% 11% -5.5% 7% -5.3%
Net Average   +1.3%   +7.6%   +11.2%


Non-Manufacturing

As 2004 draws to a close, non-manufacturing purchasers report prices they pay have increased by 4.8 percent over the entire year. This is slightly more than the 4.5 percent increase they predicted in April 2004. Seventy-one percent of purchasers report price increases averaging 7.4 percent. Four percent of purchasers indicate decreased prices with an average reduction of 11.5 percent, and 25 percent of members have not experienced overall price changes this year. Industries reporting the highest rates of price increases in 2004 are: Construction; Wholesale Trade; Agriculture; Real Estate; Utilities; Retail Trade; and Public Administration.

Non-Manufacturing Price Changes Between End of 2003 and End of 2004
  Predicted
Dec 2003
Magnitude
of Change
Predicted
April 2004
Magnitude
of Change
Reported
Dec 2004
Magnitude
of Change
Higher 60% +5.1% 76% +6.8% 71% +7.4%
Same 22% NA 14% NA 25% NA
Lower 18% -5.7% 10% -6.3% 4% -11.5%
Net Average   +2.1%   +4.5%   +4.8%


Manufacturing

Sixty-eight percent of purchasing and supply managers expect the prices they pay to increase in the first part of 2005 by an average of 7.5 percent. At the same time, 13 percent anticipate decreases averaging 6.1 percent. Including the 19 percent who expect no change in prices in the first four months of 2005, purchasers expect the net average overall price change to increase 4.3 percent for the period. The industries predicting higher than average price increases are: Primary Metals; Paper; Transportation & Equipment; Rubber & Plastic Products; Miscellaneous*; Glass, Stone & Aggregate; Wood & Wood Products; Printing & Publishing; and Chemicals.

Non-Manufacturing

Non-manufacturing members predict that their purchases in the first four months of 2005 will cost an average of 2.7 percent more than at the end of 2004. This is a relatively strong rate of increase in prices for a four-month period compared to recent years. However, considering the prediction of price change for all of 2005 in the next section, purchasing and supply executives apparently expect most of 2005's price increase to occur in the first part of the year. Sixty-eight percent of non-manufacturing purchasers predict the prices they pay will increase an average of 4.9 percent in the first part of 2005. Also, 7 percent expect price decreases averaging 8.4 percent. The remaining 25 percent indicate no change in prices in the first four months of 2005. Industries reporting the largest increase in prices they pay in the first part of 2005 are: Construction; Legal Services; Wholesale Trade; Public Administration; Communication; Transportation; Utilities; Retail Trade; and Business Services.

Prices — Predicted Changes Between End of 2004 and April 2005
  Manufacturing Non-Manufacturing
  Predicted
Dec 2004
Magnitude
of Change
Predicted
Dec 2004
Magnitude
of Change
Higher 68% +7.5% 68% +4.9%
Same 19% NA 25% NA
Lower 13% -6.1% 7% -8.4%
Net Average   +4.3%   +2.7%


PRICES — Predicted Changes Between End of 2004 and End of 2005

Manufacturing

The forecast indicates respondents expect higher prices in 2005, with 69 percent expecting an average price increase of 7.8 percent, while 16 percent expect an average decline of 6.5 percent. The remaining 15 percent expect no change in their average prices paid for the coming year. The net average of the responses indicates an increase of 4.4 percent overall by the end of 2005. Industries expecting to pay above average prices by the end of 2005 are: Miscellaneous*; Transportation & Equipment; Paper; Rubber & Plastic Products; Glass, Stone & Aggregate; Primary Metals; Chemicals; Textiles; and Apparel.

Non-Manufacturing

For all of 2005, non-manufacturing purchasing and supply executives expect their prices to rise an average 3.6 percent. Seventy-one percent expect increases averaging 6 percent, 10 percent anticipate prices to drop an average 6.2 percent, and 19 percent foresee no change in prices during the next year. Industries expecting to pay above average price increases by the end of 2005 are: Construction; Wholesale Trade; Public Administration; Legal Services; Real Estate; Mining; Business Services; and Utilities.

Predicted Price Changes Between End of 2005 and End of 2004
  Manufacturing Non-Manufacturing
  Predicted
Dec 2004
Magnitude
of Change
Predicted
Dec 2004
Magnitude
of Change
Higher 69% +7.8% 71% +6.0%
Same 15% NA 19% NA
Lower 16% -6.5% 10% -6.2%
Net Average   +4.4%   +3.6%


LABOR AND BENEFIT COSTS — Predicted Rate Change End of 2004 vs. End of 2005

Manufacturing

Purchasing and supply executives' expectations for change in overall labor and benefit costs for 2005 (3.4 percent) are significantly higher than they were predicted in December 2003 (2.7 percent) for 2004. Eighty-two percent of members expect increased labor and benefit costs and expect them to grow by an average of 4.3 percent for all of 2005, while the 2 percent forecasting lower costs see them decreasing by an average of 6.7 percent. Considering the 16 percent who believe costs will remain stable, the expected overall net rate of increase is 3.4 percent between the end of 2004 and the end of 2005. Industries expecting to pay 3.4 percent or higher are: Textiles; Fabricated Metals; Wood & Wood Products; Chemicals; Miscellaneous*; Primary Metals; and Electronic Components & Equipment.

Non-Manufacturing

Purchasing and supply executives' expectations for change in labor and benefit costs for non-manufacturing industries in 2005 are for an increase of 3.7 percent. Eighty-two percent of respondents expect such costs to increase by an average 4.8 percent. Another 2 percent of purchasers expect labor and benefit costs to shrink by an average 8.7 percent, and 16 percent believe costs will remain stable during 2005. Industries expecting average or above increases in labor and benefit costs in 2005 are: Insurance; Entertainment; Utilities; Wholesale Trade; Agriculture; Health Services; Finance & Banking; Construction; Business Services; and Public Administration.

Labor and Benefit Costs — Predicted Rate Change End of 2005 vs. End of 2004
  Manufacturing Non-Manufacturing
  Predicted
for 2004
Dec 2003
Predicted
for 2005
Dec 2004
Magnitude
of Change
Predicted
for 2004
Dec 2003
Predicted
for 2005
Dec 2004
Magnitude
of Change
Higher 78% 82% +4.3% 68% 82% +4.8%
Same 19% 16% NA 27% 16% NA
Lower 3% 2% -6.7% 5% 2% -8.7
Net Average +2.7%   +3.4% +2.5%   +3.7%


EMPLOYMENT — Change in Overall Employment

Manufacturing

ISM's Manufacturing Business Survey Committee members report that manufacturing employment has increased 1.7 percent since April 2004. For 2005, they forecast that manufacturing employment will increase slightly, by 1.6 percent, with 40 percent expecting employment to be 8.7 percent higher. This is compared to the 14 percent who predict employment to be lower by 12.6 percent. The remaining 46 percent of members expect their employment levels to be unchanged in 2005. The nine industries predicting 1.6 percent growth or greater in employment are: Miscellaneous*; Instruments & Photographic Equipment; Transportation & Equipment; Primary Metals; Food; Apparel; Rubber & Plastic Products; Wood & Wood Products; and Furniture.

Non-Manufacturing

ISM's Non-Manufacturing Business Survey Committee members report that non-manufacturing employment has increased 1.8 percent since April 2004. Looking ahead to 2005, they forecast that employment will increase 3.1 percent by year end. For 2005, 46 percent expect higher levels of employment, 10 percent of members anticipate lower levels, and 44 percent expect their employment levels to be unchanged. Industries anticipating above average increases in their employment in 2005 are: Communication; Finance & Banking; Retail Trade; Business Services; and Other Services**.

Predicted Change in Overall Employment in 2005
  Manufacturing Non-Manufacturing
  Predicted
For 2005
Dec 2004
Nominal
% Change
Predicted
For 2005
Dec 2004
Nominal
% Change
Higher 40% +8.7% 46% +7.7%
Same 46% NA 44% NA
Lower 14% -12.6% 10% -5.2%
Net Average   +1.6%   +3.1%
Diffusion Index 63%   68%  

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 2005)

Manufacturing

The responses for this semiannual report indicate purchasers are optimistic about new export orders for the first half of 2005. This is consistent with recent ISM New Export Orders Index data in the monthly Manufacturing ISM Report On Business®, which has shown a growth in new export orders for the last 24 months. Of the 82 percent of members who export, 50 percent predict an increase (43 percent moderate and 7 percent substantial) over the next half year. Additionally, 4 percent (3 percent moderate, 1 percent substantial) see a decrease in their exports, and 46 percent anticipate no change in exports over the next half-year. Eight industries expect above average growth in exports: Miscellaneous*; Instruments & Photographic Equipment; Furniture; Transportation & Equipment; Textiles; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; and Electronic Components & Equipment.

Non-Manufacturing

For the next half year, non-manufacturing purchasing and supply executives who report that their organizations engage in exporting feel more optimistic than they did in either December 2003 or April 2004 concerning their export business. Of the 21 percent of non-manufacturing business survey respondents who report that they export, 55 percent predict an increase (52 percent moderate and 3 percent substantial) over the next half year. Three percent of members see a decrease in their exports (0 percent moderate and 3 percent substantial), and 42 percent anticipate no change in exports over the next half year. Of the industries that report they export, the following expect growth in export business in the first half of 2005: Communication; Construction; Wholesale Trade; Retail Trade; Business Services; Agriculture; and Other Services**.

Predicted Change in Export Business — Next Half Year
  Manufacturing Non-Manufacturing
  For 2004 For 2005 For 2004 For 2005
  First Half
of 2004
Predicted
Dec 2003
Second Half
of 2004
Predicted
April 2004
First Half
of 2005
Predicted
Dec 2004
First Half
of 2004
Predicted
Dec 2003
Second Half
of 2004
Predicted
April 2004
First Half
of 2005
Predicted
Dec 2004
Substantial Increase 4% 5% 7% 0% 0% 3%
Moderate Increase 47% 54% 43% 42% 32% 52%
No Change 41% 37% 46% 55% 54% 42%
Moderate Decrease 7% 3% 3% 0% 14% 0%
Substantial Decrease 1% 1% 1% 3% 0% 3%
Diffusion Index 71.5% 77.5% 73% 69.5% 59% 76%


IMPORT BUSINESS — Predicted Change for Next Half Year (First Half of 2005)

Manufacturing

Purchasers expect continued growth in imports in the first half of 2005. Of the 85 percent of purchasers who import, 60 percent predict an increase in their imports over the next half-year (42 percent moderate and 18 percent substantial), while 5 percent predict a decrease in imports of materials (5 percent moderate and 0 percent substantial). Slightly more than one-third of survey members (35 percent) expect no change in imports. Industries expecting above average growth in imports are: Printing & Publishing; Textiles; Apparel; Fabricated Metals; Furniture; Industrial & Commercial Equipment & Computers; Miscellaneous*; Electronic Components & Equipment; Transportation & Equipment; and Rubber & Plastic Products.

Non-Manufacturing

Non-manufacturers have about the same expectation for use of imports for the next half year that they did in April 2004 for the second half of 2004. Of the 38 percent of non-manufacturing organizations that import, 46 percent (36 percent moderate and 10 percent substantial) predict an increase in their imports during the first half of 2005. Nine percent (7 percent moderate and 2 percent substantial) predict a decrease in imports of materials and services. The remaining 45 percent of purchasers expect no change in imports over the next half year. Industries expecting growth in imports are: Transportation; Other Services**; Construction; Entertainment; Health Services; Mining; Wholesale Trade; Business Services; Retail Trade; Utilities; and Communication.

Predicted Change in Import Business — Next Half Year
  Manufacturing Non-Manufacturing
  For 2004 For 2005 For 2004 For 2005
  First Half
of 2004
Predicted
Dec 2003
Second Half
of 2004
Predicted
April 2004
First Half
of 2005
Predicted
Dec 2004
First Half
of 2004
Predicted
Dec 2003
Second Half
of 2004
Predicted
April 2004
First Half
of 2005
Predicted
Dec 2004
Substantial Increase 16% 13% 18% 13% 18% 10%
Moderate Increase 49% 43% 42% 39% 29% 36%
No Change 30% 36% 35% 43% 44% 45%
Moderate Decrease 3% 7% 5% 5% 7% 7%
Substantial Decrease 2% 1% 0% 0% 2% 2%
Diffusion Index 80% 74% 77.5% 73.5% 69% 68.5%


68th Semiannual Economic Forecast -- Continued...