ECONOMIC SLOWDOWN TO CONTINUE IN 2009

FOR RELEASE: December 9, 2008

Contact: Rose Marie Goupil
ISM, Media Relations
Tempe, Arizona
800/888-6276, Ext. 3015
E-mail: rgoupil@ism.ws


Manufacturing Contraction Expected in 2009
Revenue to Decrease 1.1%
Capital Expenditures to Decrease 6.7%
Capacity Utilization Currently at 75.2%
Non-Manufacturing to Maintain Slight Growth
Revenue to Increase 0.7%
Capital Expenditures to Decrease 8.4%
Capacity Utilization Currently at 83.1%

(New York, NY) — Economic growth in the United States will vary by industry and sector in 2009, say the nation's purchasing and supply management executives in their December 2008 Semiannual Economic Forecast. Expectations for 2009 are for the adverse conditions experienced in the second half of 2008 to continue in manufacturing, while the non-manufacturing sector foresees marginal growth say the nation's purchasing and supply management executives in their December 2008 Semiannual Economic Forecast. The overall forecast lacks the sense of optimism that purchasing and supply managers have typically expressed about the U.S. economy in their annual forecast. The manufacturing sector overall is pessimistic about prospects in 2009 with revenues expected to decline in 12 of 18 industries, while the non-manufacturing sector appears more positive about the year ahead with 8 of 18 industries expecting higher-than-average revenues. Business investment, a major driver in the U.S. economy, will decline as both sectors expect a combined 7.6 percent decline in capital spending.

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 by Anthony S. Nieves, C.P.M., CFPM, chair of the ISM Non-Manufacturing Business Survey Committee, and senior vice president — supply management, Hilton Hotels Corporation.

Manufacturing Summary

Expectations for 2009 are pessimistic as 65 percent of survey respondents expect revenues to be the same or smaller in 2009 than in 2008. The panel of purchasing and supply executives expects a 1.1 percent net decrease in overall revenues for 2009, compared to a 2.2 percent decrease reported for 2008. Manufacturing industries expecting improvement over 2008 — listed in order — are: Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Miscellaneous Manufacturing*; Food, Beverage & Tobacco Products; Apparel, Leather & Allied Products; and Chemical Products. Industries expecting a decline over 2008 — listed in order — are: Primary Metals; Nonmetallic Mineral Products; Fabricated Metal Products; Textile Mills; Computer & Electronic Products; Machinery; Paper Products; Furniture & Related Products; Transportation Equipment; and Plastics & Rubber Products.

"Manufacturing purchasing and supply executives lack their usual optimism about their organizations' prospects as they consider the first half of 2009; however, they are somewhat more positive about the second half," said Ore. "While 2008 has been a challenging year overall, we are apparently seeing a rapid halt to the inflationary cycle of the past several years as it relates to manufacturing inputs. Respondents expect cost pressures to stabilize in the second half of 2009 based on their overall price forecast. Manufacturing growth is now in its fourth consecutive month of contraction as measured by and reported in the monthly Manufacturing ISM Report On Business®."

In the manufacturing sector, respondents report operating at 75.2 percent of their normal capacity, down from 78.6 percent reported in April 2008. Purchasing and supply executives predict that capital expenditures will decrease by 6.7 percent in 2009, compared to a 5.9 percent increase reported for 2008. Survey respondents also forecast that they will reduce inventories in an effort to decrease their purchased inventory-to-sales ratio in 2009. Manufacturers have an expectation that employment in the sector will decline by 2.7 percent, while labor and benefits costs are expected to increase an average of 1.9 percent in 2009. Manufacturing purchasers are predicting strength in exports but weakness in imports. They also expect the U.S. dollar to strengthen on average against the currencies of major trading partners.

The panel also predicts the prices they pay will decrease 2.3 percent during the first four months of 2009, and will decrease an additional 0.3 percent during the balance of 2009, with an overall decrease of 2.6 percent for 2009. Respondents' major concerns are: weak economy/recession; credit crisis; consumer spending; automobile industry; and housing.

A special question was asked to determine the progress of organizations in achieving efficiencies from the application of technology to supply management. Respondents believe they are only 48.1 percent complete on average in achieving benefits from technology in their supply chain, indicating there is still significant improvement to be gained from the application of technology in manufacturing.

Survey respondents expect to realize supply chain improvements through new or improved enterprise technology; cost reduction; supplier consolidation; improved inventory management; and improved supplier management practices.

Non-Manufacturing Summary

Thirty-six percent of non-manufacturing supply management executives expect their 2009 revenues to be greater than in 2008. They currently expect a 0.7 percent net increase in overall revenues for 2009 compared to a 2.6 percent decrease reported for 2008. Non-manufacturing industries expecting revenue improvement in 2009 over 2008 — listed in order — are: Information; Accommodation & Food Services; Health Care & Social Assistance; Wholesale Trade; Other Services**; Retail Trade; Utilities; and Management of Companies & Support Services. Industries expecting revenue decreases in 2009 — listed in order — are: Professional, Scientific & Technical Services; Arts, Entertainment & Recreation; Construction; Finance & Insurance; Agriculture, Forestry, Fishing & Hunting; Public Administration; Educational Services; Transportation & Warehousing; and Real Estate, Rental & Leasing.

"Non-manufacturing supply managers report operating at 83.1 percent of their normal capacity, below the 85.9 percent reported in April 2008. They are cautiously optimistic about continued growth in the first half of 2009 compared to the second half of 2008, and they have a lower level of optimism about the next 12 months than they had last December for 2008," said Nieves. "They forecast that their capacity to produce products and provide services will rise by 0.6 percent during 2009, and capital expenditures will decrease by 8.4 percent from the 2008 level. Non-manufacturers also predict that their employment will decrease by 1.3 percent during 2009. Their major economic concerns are: weak economy; credit markets; health care, labor and benefits costs; energy costs; taxes and interest rates."

Respondents in non-manufacturing industries expect that the prices they pay for materials and services will increase by 2.3 percent during 2009. They also forecast a 1.5 percent increase in their overall labor and benefit costs for 2009. Profit margins are reported to have decreased in the second and third quarters of 2008, and respondents expect them to decrease between now and April 2009. Survey respondents indicate they have achieved an average of 55.2 percent of potential benefits from application of technology to supply chains, and that the increased use of technology and analytical tools is the most frequently cited means of improving supply chains in 2009. Other improvement approaches include: product rationalization and value analysis; supplier consolidation; contract management strategies; and improved supply management processes.



OPERATING RATE

Manufacturing

Manufacturing purchasing and supply executives report that their companies are currently operating at 75.2 percent of normal capacity. This is a decrease when compared to April 2008 (78.6 percent) and significantly less than the rate reported in December 2007 (82.9 percent). The November data from the Manufacturing ISM Report On Business® indicates the manufacturing sector is in its fourth month of contraction. The following 10 industries are operating above the average capacity of 75.2 percent: Paper Products; Printing & Related Support Activities; Computer & Electronic Products; Food, Beverage & Tobacco Products; Apparel, Leather & Allied Products; Textile Mills; Petroleum & Coal Products; Chemical Products; Miscellaneous Manufacturing*; and Primary Metals. Industries operating below the average capacity are: Nonmetallic Mineral Products; Plastics & Rubber Products; Transportation Equipment; Furniture & Related Products; Wood Products; Machinery; Electrical Equipment, Appliances & Components; and Fabricated Metal Products.

Non-Manufacturing

Non-manufacturing supply executives report that their organizations are currently operating at 83.1 percent of normal capacity. This is lower than the 85.9 percent reported in April 2008, and lower than the 86.4 percent reported in December 2007. 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 maintain their utilization of capacity at a relatively high level. The following industries are operating at or above the average capacity level of 83.1 percent: Public Administration; Educational Services; Health Care & Social Assistance; Utilities; Other Services**; Information; Real Estate, Rental & Leasing; and Finance & Insurance. Industries operating below the average capacity are: Arts, Entertainment & Recreation; Management of Companies & Support Services; Transportation & Warehousing; Accommodation & Food Services; Retail Trade; Construction; Wholesale Trade; Professional, Scientific & Technical Services; and Agriculture, Forestry, Fishing & Hunting.

Operating Rate
  Manufacturing Non-Manufacturing
  Dec
2007
April
2008
Dec
2008
Dec
2007
April
2008
Dec
2008
90%+ 41% 33% 30% 56% 52% 43%
50%-89% 54% 60% 63% 38% 46% 52%
Below 50% 5% 7% 7% 6% 2% 5%
Est. Overall Average 82.9% 78.6% 75.2% 86.4% 85.9% 83.1%


PRODUCTION CAPACITY

Manufacturing

Production capacity in manufacturing decreased 0.8 percent in 2008 as 36 percent of purchasing and supply executives reported an average capacity increase of 10.3 percent, 23 percent reported decreases averaging 20 percent, and 41 percent reported no change. This compares to a predicted increase of 2.5 percent for 2008 made in April 2008. Expectations for 2009 are for an increase of 2.1 percent. The following industries report achieving an increase in production capacity in 2008: Petroleum & Coal Products; Furniture & Related Products; Primary Metals; Paper Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Printing & Related Support Activities; and Fabricated Metal Products. Industries reporting a decrease in production capacity in 2008 are: Nonmetallic Mineral Products; Textile Mills; Miscellaneous Manufacturing*; Electrical Equipment, Appliances & Components; Transportation Equipment; Wood Products; Chemical Products; Computer & Electronic Products; and Machinery.

Manufacturing Production Capacity
  For 2008 For 2008 For 2009
  Predicted
April 2008
Magnitude
of Change
Reported
Dec 2008
Magnitude
of Change
Predicted
Dec 2008
Magnitude
of Change
Higher 31% +13.1% 36% +10.3% 31% +10.9%
Same 57% NA 41% NA 55% NA
Lower 12% -13.1% 23% -20% 14% -9.5%
Net Average   +2.5%   -0.8%   +2.1%

The principal means of achieving increases in production capacity in 2008 were (in order of importance):

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

The capacity to produce products or provide services in the non-manufacturing sector increased 0.3 percent during 2008. This is less than the 1.5 percent increase reported in December 2007 for 2007, and is less than the prediction in April 2008 of a 3.9 percent increase in 2008. For 2009, a larger increase (0.6 percent) is predicted. For 2008, 22 percent of non-manufacturing supply managers indicate increases averaging 12.5 percent, and 20 percent of respondents indicate decreases averaging 12.1 percent. Fifty-eight percent see no change in their capacity. The industries reporting increases in capacity in 2008 are: Educational Services; Construction; Retail Trade; Accommodation & Food Services; and Utilities. Industries reporting a decrease in capacity in 2008 are: Arts, Entertainment & Recreation; Transportation & Warehousing; Real Estate, Rental & Leasing; Finance & Insurance; Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Health Care & Social Assistance; Public Administration; Other Services**; Wholesale Trade; and Professional, Scientific & Technical Services.

Non-Manufacturing Production or Provision Capacity
  For 2008 For 2008 For 2009
  Predicted
April 2008
Magnitude
of Change
Reported
Dec 2008
Magnitude
of Change
Predicted
Dec 2008
Magnitude
of Change
Higher 34% +16.1% 22% +12.5% 28% +8.7%
Same 59% NA 58% NA 61% NA
Lower 7% -19.6% 20% -12.1% 11% -16.2%
Net Average   +3.9%   +0.3%   +0.6%

The principal means of achieving increases in production capacity in 2008 were (in order of importance):

  1. More hours worked with existing personnel
  2. Additional personnel (permanent, temporary or contract)
  3. Replaced equipment with technically-advanced equipment
  4. Additional plant and/or equipment
  5. More shifts worked with existing personnel
  6. Fewer shutdowns of operations or facilities


CAPITAL EXPENDITURES — 2008 vs. 2007

Manufacturing

Purchasing and supply managers report 2008 capital expenditures rose 5.9 percent when compared to 2007 levels. The actual expenditures for 2008 exceed survey respondents' previous expectations as they predicted an increase of 1 percent for 2008 in April 2008. The 26 percent of purchasers who reported increased capital expenditures in 2008 indicated an average increase of 57 percent, while the 34 percent who said their capital spending was reduced reported an average decrease of 26.8 percent. Forty percent said they spent the same in 2008 as in 2007. Industries showing increases in capital expenditures for 2008 — in order of percentage increase — are: Printing & Related Support Activities; Paper Products; Electrical Equipment, Appliances & Components; Machinery; Apparel, Leather & Allied Products; Transportation Equipment; Primary Metals; and Plastics & Rubber Products. The industries showing decreases in capital expenditures for 2008 are: Wood Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Textile Mills; Chemical Products; Fabricated Metal Products; Computer & Electronic Products; Miscellaneous Manufacturing*; Food, Beverage & Tobacco Products; and Furniture & Related Products.

Non-Manufacturing

Non-manufacturing supply management executives report their level of capital expenditures in 2008 compared to 2007 rose by 1.4 percent. This is greater than the 2.7 percent decrease predicted by respondents in April 2008, and is less than the 12.3 percent increase reported for 2007 one year ago. Twenty-seven percent of respondents report increases averaging 40.1 percent. An additional 35 percent report decreases averaging 27.3 percent. Thirty-eight percent indicate they spent the same on capital expenditures in 2008 as in 2007. Industries experiencing increases in capital expenditures in 2008 are: Accommodation & Food Services; Construction; Agriculture, Forestry, Fishing & Hunting; Educational Services; Utilities; Other Services**; Information; and Wholesale Trade. The industries showing decreases in capital expenditures for 2008 are: Retail Trade; Transportation & Warehousing; Arts, Entertainment & Recreation; Management of Companies & Support Services; Real Estate, Rental & Leasing; Finance & Insurance; Public Administration; Professional, Scientific & Technical Services; and Health Care & Social Assistance.

Capital Expenditures 2008 vs. 2007
  Manufacturing Non-Manufacturing
  Predicted
April 2008
Reported
Dec 2008
Magnitude
of Change
Predicted
April 2008
Reported
Dec 2008
Magnitude
of Change
Higher 29% 26% +57% 32% 27% +40.1%
Same 41% 40% NA 41% 38% NA
Lower 30% 34% -26.8% 27% 35% -27.3%
Net Average +1.0%   +5.9% -2.7%   +1.4%


PREDICTED CAPITAL EXPENDITURES — 2009 vs. 2008

Manufacturing

Purchasing and supply executives expect capital expenditures to decrease 6.7 percent in 2009. The 13 percent of respondents who predict increased capital expenditures in 2009 indicate an average increase of 105.4 percent, while the 57 percent who said their capital spending would be reduced predict an average decrease of 35.8 percent; 30 percent said they expect to spend the same in 2009 as in 2008. Industries predicting increases in capital expenditures for 2009 — in order of percentage increase — are: Printing & Related Support Activities; and Food, Beverage & Tobacco Products. Industries expecting decreases in capital expenditures for 2009 — in order of percentage decrease — are: Nonmetallic Mineral Products; Furniture & Related Products; Primary Metals; Wood Products; Apparel, Leather & Allied Products; Machinery; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Petroleum & Coal Products; Chemical Products; Computer & Electronic Products; Transportation Equipment; Textile Mills; Plastics & Rubber Products; Paper Products; and Miscellaneous Manufacturing*.

Non-Manufacturing

Non-manufacturing purchasing and supply executives are expecting a decrease of 8.4 percent in capital expenditures from what they are reporting for 2008 (1.4 percent). The 20 percent of respondents expecting to spend more predict an average increase of 27.8 percent. An additional 50 percent anticipate a decrease averaging 27.5 percent. Thirty percent expect to spend the same on capital expenditures in 2009 as in 2008. Industries expecting increases in capital expenditures in 2009 are: Retail Trade; and Accommodation & Food Services. Industries expecting a decrease in capital expenditures in 2009 are: Construction; Arts, Entertainment & Recreation; Finance & Insurance; Management of Companies & Support Services; Professional, Scientific & Technical Services; Transportation & Warehousing; Public Administration; Health Care & Social Assistance; Other Services**; Wholesale Trade; Information; Real Estate, Rental & Leasing; and Educational Services.

Predicted Capital Expenditures 2009 vs. 2008
  Manufacturing Non-Manufacturing
  Predicted
Dec 2008
Magnitude
of Change
Predicted
Dec 2008
Magnitude
of Change
Higher 13% +105.4% 20% +27.8%
Same 30% NA 30% NA
Lower 57% -35.8% 50% -27.5%
Net Average   -6.7%   -8.4%


PRICES — Changes Between End of 2007 and End of 2008

Manufacturing

After an initial forecast in April 2008 of an 8.5 percent increase in prices paid, survey respondents now report realized price increases averaging 8.3 percent for the year. The 72 percent who say their prices are higher now than at the end of 2007 report an average increase of 13.6 percent, while the 18 percent who report lower prices averaged an 8.4 percent decrease. The remaining 10 percent indicate no change between the end of 2007 and the end of 2008. Industries experiencing higher-than-average price increases are: Wood Products; Food, Beverage & Tobacco Products; Primary Metals; Fabricated Metal Products; Chemical Products; Textile Mills; Plastics & Rubber Products; and Paper Products. All remaining industries report price increases, but at lower-than-average rates. These industries — from lowest increase up to the average — include: Computer & Electronic Products; Machinery; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Furniture & Related Products; Apparel, Leather & Allied Products; Transportation Equipment; Printing & Related Support Activities; and Miscellaneous Manufacturing*.

Manufacturing Price Changes Between End of 2007 and End of 2008
  Predicted
Dec 2007
Magnitude
of Change
Predicted
April 2008
Magnitude
of Change
Reported
Dec 2008
Magnitude
of Change
Higher 79% +6.1% 85% +10.3% 72% +13.6%
Same 12% NA 8% NA 10% NA
Lower 9% -4.7% 7% -3.9% 18% -8.4%
Net Average   +4.3%   +8.5%   +8.3%

Non-Manufacturing

As 2008 draws to a close, non-manufacturing supply managers report prices they pay have increased by 5 percent over the entire year. This is less than the 6.7 percent increase they predicted in April 2008, and more than the 3.4 percent increase reported one year ago for 2007. Seventy-four percent of purchasers report price increases averaging 8.8 percent. Eleven percent of purchasers indicate decreased prices with an average reduction of 13.4 percent, and 15 percent of respondents have not experienced overall price changes this year. Industries reporting above-average rates of price increases in 2008 are: Real Estate, Rental & Leasing; Construction; Transportation & Warehousing; Arts, Entertainment & Recreation; Professional, Scientific & Technical Services; Accommodation & Food Services; Other Services**; Retail Trade; Management of Companies & Support Services; and Utilities. The industries reporting price increases, but at a lower-than-average rate — listed in order — are: Wholesale Trade; Finance & Insurance; Public Administration; Health Care & Social Assistance; and Educational Services. Information is the only industry reporting price decreases.

Non-Manufacturing Price Changes Between End of 2007 and End of 2008
  Predicted
Dec 2007
Magnitude
of Change
Predicted
April 2008
Magnitude
of Change
Reported
Dec 2008
Magnitude
of Change
Higher 77% +6.0% 81% +8.6% 74% +8.8%
Same 13% NA 14% NA 15% NA
Lower 10% -6.7% 5% -7.2% 11% -13.4%
Net Average   +4.0%   +6.7%   +5.0%


PRICES — Predicted Changes Between End of 2008 and April 2009

Manufacturing

Twenty-seven percent of purchasing and supply managers expect the prices they pay to increase in early 2009 by an average of 6.7 percent. At the same time, 47 percent anticipate decreases averaging 8.6 percent. Including the 26 percent who expect no change in prices in the first four months of 2009, purchasers expect the net average overall price change to decline 2.3 percent for the first four months of 2009. The industries predicting increases in prices paid for the first part of 2009 are: Wood Products; Furniture & Related Products; Apparel, Leather & Allied Products; Printing & Related Support Activities; Paper Products; and Electrical Equipment, Appliances & Components. The industries expecting decreases in prices paid in the first part of 2009 are: Primary Metals; Fabricated Metal Products; Textile Mills; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Petroleum & Coal Products; Transportation Equipment; Computer & Electronic Products; Chemical Products; Machinery; Miscellaneous Manufacturing*; and Plastics & Rubber Products.

Non-Manufacturing

Non-manufacturing survey respondents predict that their purchases in the first four months of 2009 will cost an average of 1.4 percent more than at the end of 2008. This is less than the increase reported in the preceding section for all of 2008. Considering the prediction of price change for all of 2009 (2.3 percent), purchasing and supply executives apparently expect most of next year's price increase to occur in the first part of the year. Fifty percent of non-manufacturing respondents predict the prices they pay will increase an average of 6.7 percent in the first part of 2009. Eighteen percent of respondents expect price decreases averaging 11 percent. The remaining 32 percent predict no change in prices in the first four months of 2009. Industries predicting increases in prices they expect to pay in the first part of 2009 are: Transportation & Warehousing; Arts, Entertainment & Recreation; Health Care & Social Assistance; Accommodation & Food Services; Public Administration; Other Services**; Educational Services; Management of Companies & Support Services; Professional, Scientific & Technical Services; and Real Estate, Rental & Leasing. The industries expecting decreases in prices paid in the first part of 2009 are: Construction; Information; Wholesale Trade; Finance & Insurance; Utilities; and Retail Trade.

Prices — Predicted Changes Between End of 2008 and April 2009
  Manufacturing Non-Manufacturing
  Predicted
Dec 2008
Magnitude
of Change
Predicted
Dec 2008
Magnitude
of Change
Higher 27% +6.7% 50% +6.7%
Same 26% NA 32% NA
Lower 47% -8.6% 18% -11.0%
Net Average   -2.3%   +1.4%


PRICES — Predicted Changes Between End of 2008 and End of 2009

Manufacturing

Respondents predict a net average decrease in prices paid of 2.6 percent between December 2008 and December 2009, indicating they expect prices to decrease a modest 0.3 percent during the period of April 2009 through December 2009. Thirty percent of respondents expect an average price increase of 6.9 percent, while 52 percent expect an average decline of 9 percent. The remaining 18 percent expect no change in their average prices paid for the year. Industries expecting to receive increases by the end of 2009 are: Wood Products; Petroleum & Coal Products; Furniture & Related Products; Apparel, Leather & Allied Products; Printing and Related Support Activities; Paper Products; and Electrical Equipment, Appliances & Components. Industries expecting to receive price decreases by the end of 2009 are: Primary Metals; Nonmetallic Mineral Products; Fabricated Metal Products; Textile Mills; Plastics & Rubber Products; Chemical Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing*; Machinery; Computer & Electronic Products; and Transportation Equipment.

Non-Manufacturing

For all of 2009, non-manufacturing supply management executives expect their prices to increase an average of 2.3 percent. Fifty-eight percent of respondents expect increases averaging 7.3 percent, 20 percent anticipate prices to drop an average of 9.4 percent, and 22 percent foresee no change in prices during the next year. Industries expecting price increases by the end of 2009 are: Transportation & Warehousing; Arts, Entertainment & Recreation; Health Care & Social Assistance; Accommodation & Food Services; Management of Companies & Support Services; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Public Administration; Other Services**; Wholesale Trade; and Utilities. Industries expecting to receive price decreases by the end of 2009 are: Construction; Agriculture, Forestry, Fishing & Hunting; Finance & Insurance; Retail Trade; Information; and Educational Services.

Predicted Price Changes Between End of 2008 and End of 2009
  Manufacturing Non-Manufacturing
  Predicted
Dec 2008
Magnitude
of Change
Predicted
Dec 2008
Magnitude
of Change
Higher 30% +6.9% 58% +7.3%
Same 18% NA 22% NA
Lower 52% -9.0% 20% -9.4%
Net Average   -2.6%   +2.3%


LABOR AND BENEFIT COSTS — Predicted Rate Change End of 2008 vs. End of 2009

Manufacturing

Purchasing and supply executives expect higher overall labor and benefit costs for 2009. Sixty-four percent of respondents expect increased labor and benefit costs and expect them to grow by an average of 4.3 percent for all of 2009, while the 8 percent forecasting lower costs see them decreasing by an average of 9.9 percent. Including the 28 percent of respondents who believe costs will remain the same, the expected overall net rate of increase is 1.9 percent between the end of 2008 and the end of 2009. Industries expecting to pay an increase of 1.9 percent or higher are: Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Wood Products; Plastics & Rubber Products; Furniture & Related Products; Paper Products; Machinery; Miscellaneous Manufacturing*; Chemical Products; and Textile Mills. Industries expecting an increase of less than 1.9 percent are: Fabricated Metal Products; Apparel, Leather & Allied Products; Computer & Electronic Products; and Primary Metals. The following industries expect a decrease in overall labor and benefit costs for 2009: Printing & Related Support Activities; Petroleum & Coal Products; Transportation Equipment; and Nonmetallic Mineral Products.

Non-Manufacturing

Supply executives' expectation for change in labor and benefit costs for non-manufacturing industries in 2009 is an increase of 1.5 percent. Fifty-nine percent of respondents expect such costs to increase by an average of 4.7 percent. Another 11 percent of respondents expect labor and benefit costs to shrink by an average of 11.2 percent, and 30 percent believe costs will remain stable during 2009. Industries expecting average or above increases in labor and benefit costs in 2009 over 2008 are: Professional, Scientific & Technical Services; Health Care & Social Assistance; Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; Other Services**; Utilities; Retail Trade; Information; Construction; and Real Estate, Rental & Leasing. Industries expecting an increase of less than 1.5 percent are: Finance & Insurance; Public Administration; Wholesale Trade; and Arts, Entertainment & Recreation. The industries expecting a decrease in overall labor and benefit costs for 2009 are: Transportation & Warehousing; Educational Services; and Accommodation & Food Services.

Labor and Benefit Costs — Predicted Rate Change End of 2009 vs. End of 2008
  Manufacturing Non-Manufacturing
  Predicted
for 2008
Dec 2007
Predicted
for 2009
Dec 2008
Magnitude
of Change
Predicted
for 2008
Dec 2007
Predicted
for 2009
Dec 2008
Magnitude
of Change
Higher 74% 64% +4.3% 72% 59% +4.7%
Same 24% 28% NA 23% 30% NA
Lower 2% 8% -9.9% 5% 11% -11.2%
Net Average +2.5%   +1.9% +3.0%   +1.5%


EMPLOYMENT

Change in Overall Employment

Manufacturing

ISM's Manufacturing Business Survey Committee members report that manufacturing employment decreased 4 percent since April 2008, and forecast that it will decrease 2.7 percent in 2009. Twelve percent expect employment to be 9.5 percent higher, while 43 percent predict employment to be lower by 9 percent. The remaining 45 percent of respondents expect their employment levels to be unchanged in 2009. The industries predicting increases in employment are: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; and Transportation Equipment. Industries predicting employment will decrease in 2009 are: Primary Metals; Nonmetallic Mineral Products; Printing & Related Support Activities; Furniture & Related Products; Wood Products; Machinery; Plastics & Rubber Products; Miscellaneous Manufacturing*; Paper Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Chemical Products; and Computer & Electronic Products.

Non-Manufacturing

ISM's Non-Manufacturing Business Survey Committee members report that non-manufacturing employment has decreased 3.2 percent since April 2008. Looking ahead to 2009, they forecast that employment will decrease 1.3 percent by the end of 2009. For 2009, 18 percent of respondents expect higher levels of employment, 37 percent anticipate lower levels, and 45 percent expect their employment levels to be unchanged. Industries anticipating increases in their employment in 2009 are: Information; Construction; Professional, Scientific & Technical Services; Management of Companies & Support Services; Health Care & Social Assistance; and Other Services**. Industries predicting employment will decrease in 2009 are: Arts, Entertainment & Recreation; Accommodation & Food Services; Public Administration; Transportation & Warehousing; Educational Services; Agriculture, Forestry, Fishing & Hunting; Finance & Insurance; Real Estate, Rental & Leasing; Wholesale Trade; Retail Trade; and Utilities.

Change in Overall Employment
  Manufacturing Non-Manufacturing
  Reported for 2008
(since April)
Dec 2008
Predicted
For 2009
Dec 2008
Magnitude
of Change
Reported for 2008
(since April)
Dec 2008
Predicted
For 2009
Dec 2008
Magnitude
of Change
Higher 17% 12% +9.5% 16% 18% +11.1%
Same 31% 45% NA 46% 45% NA
Lower 52% 43% -9% 38% 37% -9.0%
Net Average -4.0%   -2.7% -3.2%   -1.3%
Diffusion Index 32.5% 34.5%   39% 40.5%  

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 2009)

Manufacturing

The responses for this semiannual report indicate purchasers see increases in new export orders for the first half of 2009. This is inconsistent with the most recent ISM New Export Orders Index data in the monthly Manufacturing ISM Report On Business®, which has shown a contraction in new export orders in the last two months. Of the 79 percent of respondents who export, 36 percent predict an increase (33 percent moderate and 3 percent substantial) over the next half-year. Nineteen percent of respondents (14 percent moderate and 5 percent substantial) predict a decrease in their exports, and 45 percent anticipate no change in exports over the next half-year. Eleven industries expect growth in exports during the first half of 2009: Printing & Related Support Activities; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Petroleum & Coal Products; Textile Mills; Plastics & Rubber Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; and Machinery. Two industries expect a decrease in exports for the first half of 2009: Paper Products and Chemical Products.

Non-Manufacturing

For the first half of 2009, non-manufacturing supply managers who report that their organizations engage in exporting feel less optimistic than they did one year ago concerning their export business. Of the 20 percent of non-manufacturing business survey respondents who report that they export, 28 percent predict an increase (23 percent moderate and 5 percent substantial) over the next half year. Nine percent of the respondents expect a decrease in their exports (9 percent moderate and 0 percent substantial), and 63 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 2009: Management of Companies & Support Services; Professional, Scientific & Technical Services; Retail Trade; and Wholesale Trade. Agriculture, Forestry, Fishing & Hunting is the only industry expecting exports to decrease in the first half of 2009.

Predicted Change in Export Business — Next Half Year
  Manufacturing Non-Manufacturing
  For 2008 For 2009 For 2008 For 2009
  First Half
of 2008
Predicted
Dec 2007
First Half
of 2009
Predicted
Dec 2008
First Half
of 2008
Predicted
Dec 2007
First Half
of 2009
Predicted
Dec 2008
Substantial Increase 4% 3% 5% 5%
Moderate Increase 49% 33% 58% 23%
No Change 44% 45% 27% 63%
Moderate Decrease 2% 14% 5% 9%
Substantial Decrease 1% 5% 5% 0%
Diffusion Index 74.4% 58.4% 76.3% 59.1%


IMPORT BUSINESS — Predicted Change for Next Half Year (First Half of 2009)

Manufacturing

Purchasers expect a contraction in imports in the first half of 2009. Of the 85 percent of purchasers who reported they import, 30 percent predict an increase in their imports over the next half year (26 percent moderate and 4 percent substantial), while 33 percent predict a decrease in imports of materials (25 percent moderate and 8 percent substantial). Less than half of survey respondents (37 percent) expect no change in imports. Industries expecting growth in imports are: Apparel, Leather & Allied Products; Paper Products; Plastics & Rubber Products; Miscellaneous Manufacturing*; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Transportation Equipment; Food, Beverage & Tobacco Products; Chemical Products; and Machinery. The industries expecting decreases in imports are: Primary Metals; Furniture & Related Products; Wood Products; Fabricated Metal Products; Printing & Related Support Activities; and Nonmetallic Mineral Products.

Non-Manufacturing

Non-manufacturers have lower expectations for use of imports for the first half of 2009 than they did in December 2007 for the first half of 2008. Of the 40 percent of non-manufacturing organizations who reported they import, 22 percent (18 percent moderate and 4 percent substantial) predict an increase in their imports during the first half of 2009. Twenty percent of the respondents (13 percent moderate and 7 percent substantial) predict a decrease in imports of materials and services. The remaining 58 percent of purchasers expect no change in imports over the next half year. Industries expecting growth in imports are: Agriculture, Forestry, Fishing & Hunting; Other Services**; and Retail Trade. Educational Services and Wholesale Trade are the only industries expecting a decrease in imports for the first half of 2009.

Predicted Change in Import Business — Next Half Year
  Manufacturing Non-Manufacturing
  For 2008 For 2009 For 2008 For 2009
  First Half
of 2008
Predicted
Dec 2007
First Half
of 2009
Predicted
Dec 2008
First Half
of 2008
Predicted
Dec 2007
First Half
of 2009
Predicted
Dec 2008
Substantial Increase 5% 4% 5% 4%
Moderate Increase 38% 26% 36% 18%
No Change 46% 37% 50% 58%
Moderate Decrease 10% 25% 7% 13%
Substantial Decrease 1% 8% 2% 7%
Diffusion Index 65.7% 48.6% 65.5% 51.1%


BUSINESS REVENUES

Business Revenues Comparison — 2008 vs. 2007

Manufacturing

Summarizing revenues for 2008, 35 percent of respondents say revenue was better than 2007, and that nominal (before adjusting for inflation) revenues increased an average of 11.6 percent over 2007. Conversely, 46 percent say their nominal revenues decreased in 2008 by an average of 13.9 percent, and the remaining 19 percent indicate no change. Purchasing and supply executives indicate an overall net nominal decrease of 2.2 percent in business revenues for 2008 over 2007. This is significantly lower than the 1 percent increase that was forecast in April 2008 for all of 2008, and the 6.8 percent increase predicted in December 2007 for all of 2008. Industries reporting increases in revenues in 2008 are: Food, Beverage & Tobacco Products; Paper Products; Electrical Equipment, Appliances & Components; and Fabricated Metal Products. Industries reporting decreases in revenues in 2008 are: Petroleum & Coal Products; Nonmetallic Mineral Products; Furniture & Related Products; Transportation Equipment; Printing & Related Support Activities; Wood Products; Primary Metals; Machinery; Plastics & Rubber Products; Chemical Products; Computer & Electronic Products; Apparel, Leather & Allied Products; and Miscellaneous Manufacturing*.

Manufacturing Business Revenues — 2008 vs. 2007
  Predicted
Dec 2007
Nominal
% Change
Predicted
April 2008
Nominal
% Change
Reported
Dec 2008
Nominal
% Change
Higher 62% +13.5% 42% +9.2% 35% +11.6%
Same 22% NA 27% NA 19% NA
Lower 16% -9.3% 31% -9.3% 46% -13.9%
Net Average   +6.8%   +1.0%   -2.2%

Non-Manufacturing

Non-manufacturing supply management executives report that business revenues for 2008 have decreased over 2007 by 2.6 percent. This is lower than the 2.7 percent increase predicted in April 2008 for 2008, and significantly lower than the 1.3 percent increase reported one year ago for 2007 revenues over 2006 revenues. The 35 percent of respondents reporting better business in 2008 than in 2007 estimate an average nominal (before adjusting for inflation) revenue increase of 8.6 percent. This is in contrast to an average nominal decrease of 15.1 percent reported by the 38 percent who indicate worse business in 2008. The remaining 27 percent have experienced no change in 2008. Industries reporting increases in revenues in 2008 are: Agriculture, Forestry, Fishing & Hunting; Other Services**; Accommodation & Food Services; Information; Real Estate, Rental & Leasing; Wholesale Trade; and Utilities. Industries reporting decreases in revenues in 2008 are: Finance & Insurance; Arts, Entertainment & Recreation; Health Care & Social Assistance; Management of Companies & Support Services; Public Administration; Professional, Scientific & Technical Services; Construction; Transportation & Warehousing; Educational Services; and Retail Trade.

Non-Manufacturing Business Revenues — 2008 vs. 2007
  Predicted
Dec 2007
Nominal
% Change
Predicted
April 2008
Nominal
% Change
Reported
Dec 2008
Nominal
% Change
Higher 54% +8.7% 43% +12.0% 35% +8.6%
Same 34% NA 38% NA 27% NA
Lower 12% -21.9% 19% -12.8% 38% -15.1%
Net Average   +2.0%   +2.7%   -2.6%


Business Revenues Prediction for 2009

Manufacturing

Purchasers forecast that 2009 will be worse than 2008 as measured by their revenue expectations. The 35 percent of respondents forecasting better business in 2009 than in 2008 estimate an average nominal (before adjusting for inflation) increase of 9.0 percent in their organizations' revenues. This is in contrast to an average nominal decrease of 11.2 percent forecast by the 38 percent who predict worse business in 2009. Including the 27 percent who see no change in 2009, the forecast for overall net nominal decline in business revenues for 2009 over 2008 is 1.1 percent. Manufacturing industries expecting improvement over 2008 — listed in order — are: Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Miscellaneous Manufacturing*; Food, Beverage & Tobacco Products; Apparel, Leather & Allied Products; and Chemical Products. Industries expecting a decline over 2008 — listed in order — are: Primary Metals; Nonmetallic Mineral Products; Fabricated Metal Products; Textile Mills; Computer & Electronic Products; Machinery; Paper Products; Furniture & Related Products; Transportation Equipment; and Plastics & Rubber Products.

Non-Manufacturing

Non-manufacturing survey respondents forecast that business revenues for 2009 will be slightly improved over 2008 by an average of 0.7 percent. This is more than the 2.6 percent decrease reported for 2008, but lower than the 1.3 percent increase reported one year ago for 2007 revenues over 2006 revenues. The 36 percent of respondents forecasting better business in 2009 than in 2008 estimate an average nominal (before adjusting for inflation) revenue increase of 11.3 percent. This is in contrast to an average nominal decrease of 10.4 percent forecast by the 32 percent who predict worse business in 2009. The remaining 32 percent see no change in 2009. Industries expecting increases in revenues in 2009 are: Information; Accommodation & Food Services; Health Care & Social Assistance; Wholesale Trade; Other Services**; Retail Trade; Utilities; and Management of Companies & Support Services. Industries expecting revenue decreases in 2009 — listed in order — are: Professional, Scientific & Technical Services; Arts, Entertainment & Recreation; Construction; Finance & Insurance; Agriculture, Forestry, Fishing & Hunting; Public Administration; Educational Services; Transportation & Warehousing; and Real Estate, Rental & Leasing.

Business Revenues — 2009 vs. 2008
  Manufacturing Non-Manufacturing
  Predicted
Dec 2008
Nominal
% Change
Predicted
Dec 2008
Nominal
% Change
Higher 35% +9.0% 36% +11.3%
Same 27% NA 32% NA
Lower 38% -11.2% 32% -10.4%
Net Average   -1.1%   +0.7%


PROFIT MARGINS

Manufacturing

Survey respondents report that profit margins declined on average during the second and third quarters of 2008 as 15 percent experienced an increase in profit margins, 56 percent had lower margins, and 29 percent reported no change. However, expectations are for a slower rate of contraction between now and April of 2009 as 28 percent of respondents forecast better profit margins, 35 percent predict lower profit margins, and 37 percent predict no change.

Non-Manufacturing

Non-manufacturing supply management executives were asked about changes in profit margins that their organizations recently experienced and are expecting in the near future. Their responses indicate that 13 percent experienced an increase in profit margins during the second and third quarters of 2008, while 54 percent found smaller profit margins, and 33 percent had no change in margins during the same period. Looking ahead from now through April 2009, 15 percent of supply managers expect improved profit margins, 39 percent expect lower profit margins, and the remaining 46 percent of respondents anticipate no change in their profit margins.

Profit Margins
  Manufacturing Non-Manufacturing
  Apr 2008
through
Sep 2008
Reported
Dec 2008
Nov 2008
through
Apr 2009
Predicted
Dec 2008
Apr 2008
through
Sep 2008
Reported
Dec 2008
Nov 2008
through
Apr 2009
Predicted
Dec 2008
Better 15% 28% 13% 15%
Same 29% 37% 33% 46%
Worse 56% 35% 54% 39%
Diffusion Index 29.5% 46.5% 29.5% 38%


BUSINESS COMPARISON

The First Half of 2009 with Last Half of 2008

Manufacturing

Looking ahead to the first half of 2009, survey respondents are not optimistic about the next half year. Comparing their outlook for the first half of 2009 to the last half of 2008, 20 percent predict it will be better, 54 percent predict it will be worse, and 26 percent expect no change. Compared to the diffusion index for the same relative prediction one year ago (57 percent), respondents are significantly less optimistic about prospects in the manufacturing sector for the first half year (33 percent). The industries expecting improvement in 2009 are: Textile Mills; and Food, Beverage & Tobacco Products. The industries expecting business to be slower in the first half of 2009 are: Primary Metals; Nonmetallic Mineral Products; Chemical Products; Fabricated Metal Products; Furniture & Related Products; Machinery; Wood Products; Printing & Related Support Activities; Paper Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing*; Transportation Equipment; and Computer & Electronic Products.

Non-Manufacturing

The first half of 2009 is predicted to be weaker than the last half of 2008, according to non-manufacturing purchasing and supply managers. The diffusion index indicating current expectations is 38.5 percent. Nineteen percent of respondents expect the first half of next year to be better than the last half of this year, 42 percent anticipate it will be worse, and 39 percent predict no change. Overall, there is no industry expecting improvement in the first half of 2009. The industries expecting business to be slower in the first half of 2009 are: Arts, Entertainment, & Recreation; Finance & Insurance; Retail Trade; Information; Professional, Scientific & Technical Services; Public Administration; Transportation & Warehousing; Construction; Health Care & Social Assistance; Utilities; and Educational Services.

Business — First Half 2009 vs. Last Half 2008
  Manufacturing Non-Manufacturing
  Predicted
Dec 2008
Predicted
Dec 2008
Better 20% 19%
Same 26% 39%
Worse 54% 42%
Diffusion Index 33% 38.5%

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 2009 with the First Half of 2009

Manufacturing

Purchasing and supply executives are more optimistic about the second half of 2009 compared to the first half of the year. The percentage of survey respondents who forecast the second half of 2009 to be better than the first half is 45 percent, while 16 percent expect it to be worse, and 39 percent expect no change. The industries predicting improvement in the second half of 2009 are: Paper Products; Petroleum & Coal Products; Textile Mills; Miscellaneous Manufacturing*; Nonmetallic Mineral Products; Furniture & Related Products; Plastics & Rubber Products; Primary Metals; Food, Beverage & Tobacco Products; Transportation Equipment; Printing & Related Support Activities; Wood Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; and Machinery. No industry expects business to be worse in the second half of 2009.

Non-Manufacturing

Comparing the second half of 2009 to the first half, non-manufacturing purchasing and supply executives feel more optimistic than they do for the first half of the year compared to the last half of 2008 (diffusion index of 61.5 percent compared to 38.5 percent). The percentage of respondents who currently forecast the second half of 2009 to be better than the first half is 40 percent, while 17 percent expect it to be worse. An additional 43 percent of purchasers expect no change. The industries expecting improvement in the second half of the year are: Agriculture, Forestry, Fishing & Hunting; Retail Trade; Management of Companies & Support Services; Real Estate, Rental & Leasing; Accommodation & Food Services; Utilities; Finance & Insurance; Transportation & Warehousing; Wholesale Trade; Health Care & Social Assistance; Other Services**; Educational Services; Construction; and Professional, Scientific & Technical Services. Two industries — Public Administration and Information — expect business to be worse in the second half of 2009.

Business — Second Half 2009 vs. First Half 2009
  Manufacturing Non-Manufacturing
  Predicted
Dec 2008
Predicted
Dec 2008
Better 45% 40%
Same 39% 43%
Worse 16% 17%
Diffusion Index 64.5% 61.5%

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.



SUPPLY CHAIN PRACTICES IN 2009

Manufacturing

In response to a special question regarding supply chain optimization, 66 percent of purchasing and supply executives plan to take new steps in 2009 to improve their supply chain management practices.

The favored approaches are listed below:

  • New or improved enterprise technology
  • Cost reduction
  • Supplier consolidation
  • Improved inventory management
  • Improved supplier management practices
Non-Manufacturing

Responding to a special question regarding supply chain improvements in 2009, 67 percent of respondents stated that they plan to take steps during the current year to improve their supply chain management practices.

The five most frequently cited approaches are listed below:

  • Increased use of technology and analytical tools
  • Product rationalization/value analysis
  • Supplier consolidation
  • Contract management strategies
  • Improved supply management processes


INVENTORY-TO-SALES RATIO

Manufacturing

Purchasers will be decreasing inventory on hand to support their planned level of sales during 2009. In this forecast, 7 percent expect to increase their purchased inventory-to-sales ratio during 2009. This is in contrast to 41 percent who expect the ratio to decrease, and 52 percent who predict no change.

Non-Manufacturing

Of the 62 percent of non-manufacturing purchasers who answered this question, 9 percent anticipate increasing their purchased inventory-to-sales ratio during 2009. An additional 16 percent expect their ratio to drop, and 75 percent see no change. The diffusion index of 46.5 percent suggests the inventory-to-sales ratio will contract in 2009.

Predicted Change in Purchased Inventory-to-Sales Ratio
  Manufacturing Non-Manufacturing
  For 2008
Predicted
Dec 2007
For 2009
Predicted
Dec 2008
For 2008
Predicted
Dec 2007
For 2009
Predicted
Dec 2008
Greater 18% 7% 14% 9%
Same 63% 52% 72% 75%
Smaller 19% 41% 14% 16%
Diffusion Index 49.5% 33% 50% 46.5%

Note: A diffusion index above 50 percent would indicate an increase in the inventory-to-sales ratio; below 50 percent, a decrease in the ratio.



ECONOMIC CONCERNS

Manufacturing

Purchasers have a number of supply- and cost-related concerns on their list for 2009. The most frequently cited concerns are:

  1. Weak economy/recession
  2. Credit crisis
  3. Consumer spending
  4. Auto industry
  5. Housing
Non-Manufacturing

The number one economic concern of non-manufacturing supply management executives at the present time is the state of the overall economy. The most frequently cited concerns are:

  1. Weak economy
  2. Credit markets
  3. Healthcare, labor and benefits costs
  4. Energy costs
  5. Taxes and interest rates


OUTLOOK FOR THE NEXT 12 MONTHS

Manufacturing

Survey respondents are pessimistic about the next 12 months, when compared to their response in December 2007. The 20 percent who report a better outlook is less than the 37 percent response received in December 2007. The 22 percent who report that the outlook is the same is down from the 38 percent reported in December 2007, and the 58 percent who indicated the outlook to be worse is higher than the 25 percent reported in December 2007.

Non-Manufacturing

Non-manufacturing survey respondents have a negative outlook now compared to when they looked ahead in December 2007. The 16 percent who currently report a better outlook is lower than the 34 percent who had that outlook in December 2007. Thirty-three percent expect no change, and 51 percent feel the outlook will be worse over the next 12 months.

Outlook — Next 12 Months
  Manufacturing Non-Manufacturing
  Predicted
for 2008
Dec 2007
Predicted
for 2009
Dec 2008
Predicted
for 2008
Dec 2007
Predicted
for 2009
Dec 2008
Better 37% 20% 34% 16%
Same 38% 22% 39% 33%
Worse 25% 58% 27% 51%
Diffusion Index 56% 31% 53.5% 32.5%


U.S. DOLLAR — Predicted Strength vs. Major Trading Currencies — in 2009 — Manufacturing Only

Manufacturing

Purchasing and supply executives are optimistic concerning the prospective strength of the U.S. dollar for 2009. The average diffusion index for this forecast is 71 percent, significantly stronger than the December 2007 forecast average of 47.9 percent. Of the seven currencies surveyed in the report, the U.S. dollar is expected to strengthen most against the Mexican Peso, while gaining ground against all of the major currencies.

U.S. Dollar Will Be: Euro Can.
$
British
Pound
Japanese
Yen
Mexican
Peso
Korean
Won
Taiwan
$
Stronger than 63% 65% 59% 50% 67% 58% 49%
Same as 16% 25% 22% 23% 24% 28% 36%
Weaker than 21% 10% 19% 27% 9% 14% 15%
Diffusion Index 71% 77.5% 70% 61.5% 79% 72% 67%

Note: A diffusion index above 50 percent would predict a generally stronger U.S. dollar; below 50 percent, a generally weaker U.S. dollar, with the distance from 50 percent indicative of the predicted strength or weakness.


Benefits of Applying Technology

Manufacturing

A special question was asked to determine the progress of organizations in achieving efficiencies from the application of technology to supply management. Respondents believe they are only 48 percent complete on average in achieving benefits from technology in their supply chain, indicating there is still significant improvement to be gained from the application of technology in manufacturers' supply chains.

Non-Manufacturing

Survey respondents were asked a special question concerning the realized proportion of potential supply chain efficiencies that could ultimately be gained from applying technology to their supply chain. The average response from non-manufacturing respondents was 55 percent, indicating that, on average, slightly less than half of potential improvement is yet to be gained. While 33 percent of respondents have achieved at least 75 percent of their expected potential benefit, the remaining 67 percent still have significant benefits to gain.

Benefits of Applying Technology
% Benefits
Realized to Date
Manufacturing
% of Responses
Non-Manufacturing
% of Responses
90-100 6% 6%
75-89 15% 27%
50-74 42% 37%
Less than 50 37% 30%


SUMMARY

Manufacturing

The manufacturing sector is currently contracting, and the forecast indicates that it will continue to contract with significant improvement in the second half of 2009.

  • Operating rate is 75.2 percent.
  • Production capacity decreased by 0.8 percent in 2008.
  • Production capacity is expected to increase by 2.1 percent in 2009.
  • Capital expenditures increased 5.9 percent in 2008.
  • Capital expenditures are expected to decrease 6.7 percent in 2009.
  • Prices paid increased 8.3 percent in 2008.
  • Overall 2009 prices paid are expected to decrease 2.6 percent.
  • Labor and benefit costs are expected to increase 1.9 percent in 2009.
  • Manufacturing employment is expected to decrease 2.7 percent in 2009.
  • Expect growth in U.S. exports in 2009.
  • Expect decline in U.S. imports in 2009.
  • Manufacturing revenues (nominal) are down 2.2 percent in 2008.
  • Manufacturing revenues (nominal) are expected to be down 1.1 percent in 2009.
  • Major concerns to manufacturers: weak economy/recession; credit crisis; consumer spending; auto industry; and housing.
  • The U.S. dollar is expected to strengthen on average versus major trading partner currencies in 2009.
  • Overall attitude of manufacturing management: pessimistic, with 80 percent of respondents predicting 2009 will be the same as or worse than 2008.
Non-Manufacturing

The non-manufacturing sector continues to expand and the forecast indicates an increased rate of expansion in 2009.

  • Operating rate is currently 83.1 percent.
  • Production capacity increased 0.3 percent in 2008.
  • Production and provision capacity is expected to increase 0.6 percent in 2009.
  • Capital expenditures increased 1.4 percent in 2008.
  • Capital expenditures are expected to decrease 8.4 percent in 2009.
  • Prices paid increased 5 percent in 2008.
  • Prices paid are expected to increase 2.3 percent in 2009.
  • Labor and benefit costs are expected to increase 1.5 percent in 2009.
  • Non-manufacturing employment is expected to decrease 1.3 percent in 2009.
  • Expect slight export growth in 2009.
  • Expect slight import growth in 2009, although at a much slower rate than in 2008.
  • Non-manufacturing revenues (nominal) are down 2.6 percent in 2008.
  • Non-manufacturing revenues (nominal) are expected to rise 0.7 percent in 2009.
  • Major concerns to non-manufacturers: weak economy; credit markets; healthcare, labor and benefits costs; energy costs; and taxes and interest rates.
  • Overall attitude of non-manufacturing supply managers: negative outlook, with 84 percent of respondents predicting 2009 will be the same as or worse than 2008.

*Miscellaneous Manufacturing includes items such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies.

**Other Services include services such as equipment and machinery repairing; promoting or administering religious activities; grant making; advocacy; and providing dry-cleaning and laundry services, personal care services, death care services, pet care services, photofinishing services, temporary parking services, and dating services.

In addition to the forecast, the Manufacturing ISM Report On Business® is issued monthly and is considered by many economists to be the most reliable near-term economic barometer available. It is reviewed regularly by government agencies and economic business leaders. The report, compiled from responses to questions asked of purchasing and supply executives across the country, tracks industrial production, new orders, inventories, supplier deliveries, imports, exports, backlog of orders, employment, customers' inventories, buying policies and prices. The report has been issued by the association since 1931, except during World War II.

Covering the non-manufacturing sector, ISM debuted the Non-Manufacturing ISM Report On Business® in June 1998. The Non-Manufacturing ISM Report On Business® is released on the third business day of each month, and is based on data received from purchasing and supply executives across the country. The report covers business activity, new orders, backlog of orders, new export orders, inventory change, inventory sentiment, imports, prices, employment, and supplier deliveries.

The Manufacturing and Non-Manufacturing ISM Report On Business® is published monthly by the Institute for Supply Management™. The Institute for Supply Management™, established in 1915, is the largest supply management organization in the world as well as one of the most respected. ISM's mission is to lead the supply management profession through its standards of excellence, research, promotional activities and education.

The full text version of each report is posted on ISM's Home Page at www.ism.ws on the first and third business day of every month after 10:10 a.m. (ET).

The next Manufacturing ISM Report On Business® featuring the December 2008 data will be released at 10:00 a.m. (ET) on Friday, January 2, 2009.

The next Non-Manufacturing ISM Report On Business® featuring the December 2008 data will be released at 10:00 a.m. (ET) on Tuesday, January 6, 2009.



Back to Top