FOR RELEASE: May 25, 1999

CONTACT:	Zenobia Daruwalla
	NAPM Media Relations
	602/752-6276 ext. 3015

Forecast Revenue Growth of 4.3%, Capacity Utilization 84.9%

(San Diego, California) — Economic growth will be higher in the second half of 1999, say the nation’s purchasing executives in their 57th Manufacturing Semiannual Economic Forecast. While 62% expect their 1999 revenues to be greater than in 1998, they expect a 4.3% net increase in revenues compared to a 5.2% increase predicted in December 1998.

These projections are part of the 57th Manufacturing Semiannual Economic Forecast issued by the Manufacturing Business Survey Committee of the National Association of Purchasing Management, Inc. (NAPM). The forecast was presented today by Norbert J. Ore., C.P.M., chair of the NAPM Manufacturing Business Survey Committee and director, corporate purchasing, Chesapeake Corporation. "Purchasing executives report a higher level of optimism for the coming year than they did a year ago with 71% of them expecting business in the first half of 1999 to be better or the same as the second half of 1998," said Ore. Industries expecting the greatest improvement over 1998 are - listed in order - Electrical Components & Equipment; Rubber & Plastic Products; Glass, Stone & Aggregate; Miscellaneous (a preponderance of jewelry, toys, sporting goods and musical instruments); Leather; Chemicals; Food; Wood & Wood Products; Printing & Publishing; and Transportation & Equipment.

Purchasers report operating at 84.9% of their normal capacity, down slightly from 85.2% reported in December 1998. Purchasing executives predict that capital expenditures will decrease by 0.6% in 1999 compared to the December 1998 prediction of 3.5%. Purchasers also forecast that they will continue to reduce their purchased inventory to sales ratio. Employment in manufacturing is expected to increase only 0.1%. Their major concerns are: the economy, inflation, labor and benefits costs, rising interest rates, and material shortages.

Purchasers expressed little concern over possible increased materials costs, stating that prices paid for materials decreased during the first four months of 1999 by 1.3%. During all of 1999, they anticipate a 0.8% decrease in prices, therefore, they have expectations of no price increases, on average, for the balance of the year. They also forecast a 2.0% increase in their overall labor and benefits costs for 1999. Purchasers are predicting growth in both their imports and exports, with exports growing more rapidly than imports. Purchasers have slightly lower expectations for the U.S. Dollar to gain strength versus the currencies of major trading partners in the coming year than they did in December 1998.

Recapping previous NAPM Survey Data, the following information was found:

• In its 56th Semiannual Economic Forecast®, released December 8, 1998, NAPM’s Manufacturing Business Survey Committee predicted the economy would continue to grow during 1999. They predicted increases in production capacity and capital spending, stable prices for materials and labor, growth in imports and exports, and a decline in manufacturing employment. They projected nominal revenues would increase by 5.2% overall in 1999. They also expected labor and benefits costs to rise 2.5% in 1999.
  
  
• On May 3, 1999, the monthly release of the Manufacturing NAPM Report on Business® indicated that the manufacturing sector grew for the third consecutive month in April 1999, and at a slightly slower rate of growth than in March. The overall economy grew in April at a slower rate than in March. Sixteen of twenty industries reported improvement over March 1999.
  
  
• The Purchasing Managers’ Index (PMI) in April declined slightly to 52.8 % from 54.3% in March. Past experience indicates that if the average PMI for all of 1999 equaled the April value, that index reading would be consistent with real gross domestic growth (GDP) of approximately +3.2% for 1999. Over time, a PMI in excess of 50.0% generally indicates an expansion in the manufacturing sector, while a PMI in excess of 43.5% generally indicates an expansion of the overall economy.
  
  

OPERATING CAPACITY

Purchasing executives report that their companies are currently operating at 84.9% of normal capacity. This is the first time since December 1993 that our members have reported operating capacity below 85%. The decrease from 85.2% reported in December 1998 is consistent with the growth experienced by the manufacturing sector in recent months. The following industries are operating at the highest levels of capacity: Rubber & Plastic Products; Glass, Stone & Aggregate; Primary Metals; Instruments & Photographic Equipment; Wood & Wood Products; Petroleum; Paper; Textiles; Chemicals; Printing & Publishing; Transportation & Equipment; Miscellaneous (a preponderance of jewelry, toys, sporting goods and musical instruments); and Food.

Operating Capacity

	Apr’96	Dec’96	May’97	Dec’97	May’98	Dec’98	May ‘99
90%+	46%	55%	48%	50%	52%	43%	46%
50%-89%	53%	44%	51%	49%	46%	56%	51%
Below 50%	1%	1%	1%	1%	2%	1%	3%
Est. Overall Average	86.0%	86.8%	86.4%	86.4%	86.2%	85.2%	84.9%

PRODUCTION CAPACITY

Production capacity in manufacturing is expected to increase 5.1% in 1999 as 48% of purchasing executives reported an average capacity increase of 12.9%, 9% reported decreases averaging 13.0%, and 43% reported no change. This compares to a capacity increase of 3.3% for all of 1998 and a predicted 1999 increase of 4.3% in December 1998.

The principal means of achieving increases in production capacity in 1999 are - in order of importance:

1. Additional plant and/or equipment
   
   
2. Replacement of equipment with more technically advanced equipment
   
   
3. More hours worked
   
   
4. More shifts worked
   
   
5. Fewer plant shutdowns
   
   

Production Capacity

	1998 CHANGE		1999 CHANGE		1999 CHANGE
	Dec ’98	Reported Magnitude of Change	Dec ‘98	Predicted Magnitude of Change	May ‘99	Predicted Magnitude of Change
Higher	46%	+9.4%	55%	+8.5%	48%	+12.9%
Same	44%	NA	40%	NA	43%	NA
Lower	10%	-10.4%	5%	-7.8%	9%	-13.0%
Net Average		+3.3%		+4.3%		+5.1%

PREDICTED CAPITAL EXPENDITURES - 1998 vs. 1999

Looking forward, purchasing executives are expecting no overall growth in capital expenditures in 1999. The 33% of members expecting to spend more on capital expenditures in 1999 predict an average increase of 32.4%. However 36% expect a decrease averaging 31.4%. Considering the 31% who expect to spend the same on capital expenditures in both years, the overall net average change forecast for 1999 is a decrease of 0.6%. Industries expecting higher capital expenditures in 1999 over 1998 are - in order of percentage increase - Wood & Wood Products; Food; Tobacco; Transportation & Equipment; Glass, Stone & Aggregate; and Apparel.

Predicted Capital Expenditures - 1998 vs. 1999

	Predicted Dec ‘98	Magnitude of Change	Predicted May ‘99	Magnitude of Change
Higher	29%	+39.8%	33%	+32.4%
Same	35%	N/A	31%	N/A
Lower	36%	-21.9%	36%	-31.4%
Net Average	+3.5%		-0.6%

PRICES - Changes Between End of 1998 and May of 1999

Purchasing executives report that prices they paid in the first part of 1999 decreased by an average 1.3%. Purchasers who reported paying higher prices during the period of January through April 1999 numbered 18% and indicated average price increases of 3.3%. Those experiencing price decreases included 50% of members and an average decrease of 3.7%, while 32% realized no change in prices.

Price Changes Between End of 1998 and May of 1999

	Predicted Dec ‘98	Magnitude of Change		Reported May ‘99	Magnitude of Change
Higher	19%	+ 2.5%		18%	+3.3%
Same	33%	N/A		32%	N/A
Lower	48%	-3.4%		50%	-3.7%
Net Average		-1.2%			-1.3%

Prices - Predicted Change Between End of 1998 and End of 1999

Extending the price forecast to all of 1999, the proportion of purchasers expecting price increases rose slightly from the December 1998 prediction. The net average expected price change is a decline of 0.8%. The 32% forecasting higher prices predict an average increase of 3.1% while the 44% forecasting lower prices expect an average decrease of 4.2%. Adding in the 24% who expect no change, there is minimal expected overall change in prices in 1999, an expectation which first surfaced in our December 1996 forecast. Industries predicting the largest increase over 1998 are: Rubber & Plastic Products; Glass, Stone & Aggregate; Tobacco; Printing & Publishing; Paper; and Wood & Wood Products.

Predicted Price Change Between End of 1998 and End of 1999

Predicted Magnitude Predicted Magnitude

Dec ‘98 of Change May ‘99 of Change

Higher	28%	+ 3.3%	32%	+3.1%
Same	18%	N/A	24%	N/A
Lower	54%	-4.2%	44%	-4.2%
Net Average		-1.4%		-0.8%

PRICES - Predicted Change for May 1999 through December 1999

Predicted:	All of 1999	-0.8%
Reported:	Through May 1999	-1.3%
Predicted:	Balance of 1999	+0.5%

LABOR AND BENEFIT COSTS - Predicted Rate Change End of 1998 vs. End of 1999

Purchasing executives’ expectation for change in labor and benefit costs for 1999 are slightly lower than they were in December 1998. 68% of members who expect increased labor and benefit costs expect them to grow by an average of 3.3% for all of 1999, while the 5% forecasting lower costs see them decreasing by an average 6.3%. Including consideration of the 27% who believe costs will remain stable, the expected overall net rate of increase is 2.0% between the end of 1998 and the end of 1999. This percentage is 0.5 percentage point lower than the percentage predicted in December 1998, and 0.6 percentage point lower than predicted in May 1998 for all of 1998.

Labor and Benefit Costs - Predicted Rate Change End of 1998 vs. End of 1999

	Predicted Dec ‘98	Magnitude of Change	Predicted May ‘99	Magnitude of Change
Higher	85%	+ 3.3%	68%	+3.3%
Same	11%	N/A	27%	N/A
Lower	4%	- 6.7%	5%	-6.3%
Net Average		+ 2.5%		+2.0%

PURCHASED INVENTORY-TO-SALES RATIO

Purchasers continue to reduce their purchased inventories as has been consistently reported for the past ten years in the monthly Manufacturing NAPM Report on Business® In this forecast, 31% of members expect to reduce their purchased inventory-to-sales ratio during the balance of 1999. This compares to only 10% who expect the ratio to grow and 59% who predict no change.

Predicted Change in Purchased Inventory-to-Sales Ratio

	For 1997 Dec ‘96	Balance of 1997 Apr ‘97	For 1998 Dec ‘97	Balance of 1998 May ’98	For 1999 Dec ‘98	Balance of 1999 May ‘99
Greater	11%	8%	11%	8%	8%	10%
Same	55%	60%	60%	61%	57%	59%
Smaller	34%	32%	29%	31%	35%	31%
Diffusion Index	38.5%	38.5%	41.0%	38.5%	36.5%	39.5%

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

OVERALL MANUFACTURING EMPLOYMENT

NAPM’s Manufacturing Business Survey Committee members forecast that manufacturing employment will increase 0.1% in 1999 with 34% expecting greater numbers of workers. This is compared to the 22% who predicted higher employment for 1999 in NAPM’s December 1998 forecast. With regard to 1999, 23% predicted lower employment compared to 29% who predicted fewer workers in December of 1998. The remaining 43% of members expect their employment levels to be unchanged for the remainder of 1999.

Predicted Change in Overall Manufacturing Employment

	For 1999 Dec ’98	Magnitude of Change	Balance of 1999 May ’99	Magnitude of Change
Higher	22%	+5.8%	34%	+5.9%
Same	49%	NA	43%	NA
Lower	29%	-5.8%	23%	-8.3%
Net Average		-0.4%		+0.1%
Diffusion Index		46.5%		55.5%

Note: A diffusion index above 50% would indicate an increase in manufacturing employment; below 50%, a decrease in manufacturing employment.

RESTRUCTURING AND EMPLOYMENT CHANGES - Balance of 1999

Purchasers indicated that employment changes resulting from organizational restructuring are expected to be slightly greater during the balance of 1999 than their expectations a year ago for the remainder of 1998. Overall, 31% said restructuring would reduce their employment (26% modest decrease and 5% substantial decrease). A low 12% anticipate restructuring to increase their employment (11% modest increase and 1% substantial increase) and 57% indicated no employment change from restructuring during the balance of 1999.

Changes in Employment Resulting from Restructuring - Balance of Year

	Balance of ‘96 May ‘96	Balance of ‘97 Apr ’97	Balance of ‘98 May ’98	Balance of ‘99 May ‘99
Substantial Decrease	3%	2%	5%	5%
Moderate Decrease	41%	22%	19%	26%
No Change	49%	68%	66%	57%
Moderate Increase	7%	7%	7%	11%
Substantial Increase	0%	1%	3%	1%
Diffusion Index	31.5%	42.0%	43.0%	40.5%

Note: A diffusion index above 50% would indicate an increase in the employment opportunities created by restructuring. Below 50%, a decrease in the employment opportunities.

U.S. DOLLAR - Predicted Strength vs. Major Trading Currencies - in 1999

Purchasing executives are slightly less optimistic concerning the prospective strength of the U.S. dollar for 1999 relative to major trading currencies than they were in December 1998. The average diffusion index for this forecast is 64.3%, compared to 64.8% for the December 1998 forecast. The strength of the dollar against the average of the three Asian currencies (62.8%) is lower than the December average (67.4%), while the average for the other six currencies (64.6) is slightly more than the December expectation (63.5%).

U.S. Dollar - Predicted Strength vs. Major Trading Currencies - 1999

U.S. Dollar Will Be:	Can.$	Pound	D-Mark	F. Franc	Lira	Mex Peso	Kor Won	Tai.$	Yen
Stronger Than	38%	27%	32%	42%	45%	59%	44%	38%	44%
Same As	54%	64%	51%	45%	47%	33%	42%	47%	36%
Weaker Than	8%	9%	17%	13%	8%	8%	14%	15%	20%
Diffusion Index	65.0%	59.0%	57.5%	64.5%	68.5%	75.5%	65.0%	61.5%	62.0%

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

EXPORT BUSINESS - Predicted Change for Next Half Year (2nd Half of 1999)

For the next half-year, purchasing executives have a higher level of optimism than they did in May 1998 and December 1998. Of the 82% of members who export, 52% predict an increase (48% moderate and 4% substantial) over the next half year. This compares to 38% in NAPM’s December 1998 forecast where members expected an increase in the first half of 1999, and 41% in NAPM’s May 1998 forecast where members expected an increase in the second half of 1998. Decreases in exports are expected by 8% (6% moderate and 2% substantial) and 40% anticipate no change in exports over the next half year. The diffusion index of 72% is at the low end of the range of typical forecast expectations prior to the Asian financial crisis in November of 1997 indicating a recovery consistent with NAPM’s New Export Orders Index which turned positive in February of 1999 after 14 months of decline.

Predicted Change in Export Business - Next Half Year (2nd Half of 1999)

	May ‘97	Dec ‘97	May ’98	Dec ’98	May ‘99
Substantial Increase	6%	6%	5%	4%	4%
Moderate Increase	49%	52%	36%	34%	48%
No Change	39%	36%	39%	43%	40%
Moderate Decrease	5%	5%	17%	14%	6%
Substantial Decrease	1%	1%	3%	5%	2%
Diffusion Index	74.5%	76.0%	60.5%	59.5%	72%

IMPORT BUSINESS - Predicted Change for Next Half Year

Of the 81% of purchasers who import, 38% predict an increase in their imports over the next half year (29% moderate and 9% substantial). This is slightly lower than the 41% who predicted an increase in December 1998. While 6% predict a decrease in imports of materials (4% moderate and 2% substantial). More than half of survey members (56%) expect no change in imports. Continuing the comparison to December 1998, 12% forecasted a decrease, and 47% saw no change.

Predicted Change in Import Business - Next Half Year

	May ‘97	Dec ‘97	May ‘98	Dec ‘98	May ‘99
Substantial Increase	6%	7%	9%	8%	9%
Moderate Increase	28%	34%	31%	33%	29%
No Change	58%	51%	48%	47%	56%
Moderate Decrease	7%	8%	12%	11%	4%
Substantial Decrease	1%	0%	0%	1%	2%
Diffusion Index	63.0%	66.5%	64.0%	64.5%	66.0%

BUSINESS IN 1999 - The First Half

In the first half of 1999 compared to the last half of 1998, 47% of members expect business will be better, while 29% expect it will be worse. Almost one-fourth of our members (24%) expect the first half of 1999 to be the same as the second half of 1998. The diffusion index for the current forecast rose to 59.0% from 57.0% in our December forecast.

Business: 1st Half 1999 vs. Last Half 1998

	Predicted Dec ‘98	Predicted May ‘99
Worse	22%	29%
Same	42%	24%
Better	36%	47%
Diffusion Index	57.0%	59.0%

BUSINESS IN 1999 - The Second Half

Members are optimistic about the second half of 1999 when compared to the first half of the year. The number of members who forecast the second half of 1999 to be better than the first half is 55%, while only 12% expect it to be worse and 33% expect no change.

Business: 2nd Half 1999 vs. First Half 1999

	Predicted Dec ‘98	Predicted May ‘99
Worse	12%	12%
Same	42%	33%
Better	46%	55%
Diffusion Index	67.0%	71.5%

BUSINESS IN 1999 - The Entire Year

Purchasers forecast that the entire year 1999 will better than 1998. The 62% of members forecasting better business in 1999 than in 1998 estimate an average nominal (before adjusting for inflation) increase of 11.7% in their companies’ revenues. This compares to an average nominal decrease of 13.4% forecast by the 22% predicting worse business in 1999. Including the 16% who see no change in 1999, the forecast of overall net nominal growth in business revenues in 1999 over 1998 is an increase of 4.3%; the lowest forecast increase since May 1996.

Business: 1999 vs. 1998 Revenues

	Predicted Dec ‘98	Nominal % Change	Predicted May ’99	Nominal % Change
Higher	68%	+8.9%	62%	+11.7%
Same	22%	N/A	16%	N/A
Lower	10%	- 8.8%	22%	-13.4%
Net Average		+5.2%		+4.3%

PROFIT MARGINS

Purchasing executives were asked about changes in profit margins that their companies may have recently experienced or were expecting during the balance of 1999. Their response indicated that 32% experienced an increase in profit margins during the October 1998 through March 1999 period while 34% found margins worse during the same time. Looking ahead to the balance of 1999, 49% expect improved profit margins and 15% anticipate lower profit margins. The diffusion index indicates expectations of greater profit margins in the second half of 1999.

	Profit Margins
	Oct’98 - Mar’99	Balance of 1999
Improved	32%	49%
No Change	34%	36%
Worse	34%	15%
Diffusion Index	49.0%	67.0%

Note: A diffusion index above 50% would generally indicate an increase in profit margins; below 50%, a decrease in profit margins.

SUPPLY CHAIN PRACTICES IN 1999

Responding to a special question regarding supply chain improvements in 1999, 75% of members stated that they plan to take new steps in 1999 to improve their supply chain management practices. Members also indicated a strong preference for consolidation of volume with fewer suppliers. Following that preference members indicated other initiatives as listed below:

Top 10 Actions

Actions	% of Times Mentioned
1. Supplier Reduction & Consolidation	17.0
2. Procedural & Process Changes	15.1
3. E-commerce, ERP & EDI	8.3
4. Analysis, Planning & Measurement	8.1
5. Better Communications/Supplier Relationships	7.5
6. Cost Reduction	6.0
7. Management-Related & Restructuring	6.0
8. Consignment/Inventory Reduction	4.9
9. Partnering with Vendors/Suppliers	4.7
10. Contract & Agreement Changes	4.4

ECONOMIC CONCERNS

The Economy is the number one concern as indicated by our members. It was mentioned 6.6% of the time by purchasing executives in completing the current survey. In second place is concern about Inflation - mentioned 5.7% of the time. In third place -Labor & Benefits Costs - mentioned 5.3% of the time. Rounding out the top five concerns were the Rising Interest Rates (mentioned 4.7%), and Materials Shortages (mentioned 3.6%). Labor Shortages were mentioned 3.6% of the time in December 1998, but do not appear as a major concern now.

The following are the 10 most frequently mentioned economic concerns compared to the percentage of times mentioned in December 1998, if at all:

10 Greatest Economic Concerns

Concerns	% of Times Mentioned
	May ‘99	Dec ‘98
1. The Economy	6.6	20.3
2. Inflation	5.7	4.6
3. Labor & Benefit Costs	5.3	9.0
4. Rising Interest Rates	4.7	2.2
5. Material Shortages	3.6	6.1
6. Import Restraints	3.0	--
7. Asian Economies	2.8	8.5
8. Environmental /Regulatory Costs	2.6	4.4
9. Health Care	2.5	--
10. Strong Dollar	2.3	4.4

Y2K – SPECIAL QUESTIONS

Members were asked two special questions regarding the Year 2000 and its potential impact on their operations.

The first question asked if they plan to build inventories in 1999 in anticipation of possible continuity of supply issues caused by Y2K. 34.6% of respondents indicate that they plan to build inventory and October 1 and November 1 are the most common dates that they selected to begin this process. Further, of those who said they will build inventory, 81.9% plan to add 30 or less days to current inventory levels, 14.8% will add 31-40 days, and only 3.2% intend to add more than 40 days.

Will you build Y2K Inventory?

Yes – 34.6%

No --- 65.4%

How many days inventory will you add?

1-10 days	26.2%
11-20 days	31.1%
21-30 days	24.6%
31-40 days	14.8%
41-50 days	1.6%
>50 days	1.6%

The second question asked if the purchasing managers planned to take other actions due to concern for Y2K related supply issues. 62.6% of respondents to this question plan to do so, while 37.4% don’t feel that special action will be necessary. The overwhelming majority of those planning to act indicate that they will do so prior to October 1, 1999 and, apparently, much of the activity took place in 1998, or will be complete in first half of 1999.

Among the actions planned by purchasers are:

• Audit of suppliers through letters, telephone surveys and on-site observation.
  
  
• Survey of supply base to determine degree of compliance.
  
  
• Contingency planning on critical items – including alternate sources, additional inventories, approved alternate materials.
  
  
• Greatest concern seems to be with offshore suppliers.
  
  
• Purchasing Department on call for year-end.
  
  
• Testing of internal systems to make certain that they work and testing of manual systems as backup.
  
  

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