Manufacturing Recovery Expected Revenue to Grow 5.4% Capital Spending Up 4.6% Capacity Utilization at 79.2% Non-Manufacturing Expected to be Stronger Revenue Growth to be 5.7% Capital Spending Down 0.4% Capacity Utilization at 83.9% (New York, NY) — Economic growth in the U.S. will strengthen in 2003, say the nation's purchasing and supply executives in their 64th Semiannual Economic Forecast. Expectations for 2003 are higher in both the manufacturing and non-manufacturing sectors, and both sectors are more optimistic about the coming year than they were one year ago for 2002. The overall prediction is for stronger economic growth after the slowdown experienced in 2002. These projections are part of the forecast issued by the Business Survey Committee of the Institute for Supply Management (ISM). The forecast was presented today by Norbert J. Ore, C.P.M., chair of the ISM Manufacturing Business Survey Committee and group director, strategic sourcing and procurement, Georgia-Pacific Corporation; and by Ralph G. Kauffman, Ph.D., C.P.M., chair of the ISM Non-Manufacturing Business Survey Committee and coordinator of the purchasing and supply management program at the University of Houston-Downtown. Manufacturing Summary Looking forward to 2003, 70 percent of survey respondents expect revenues to be greater in 2003 than in 2002. The panel of purchasing and supply executives expects a 5.4 percent net increase in overall revenues for 2003, compared to an actual increase of 1.1 percent increase reported for 2002. Manufacturing industries expecting the greatest improvement over 2002 are — listed in order — Electronic Components & Equipment; Chemicals; Wood & Wood Products; Transportation & Equipment; Instruments & Photographic Equipment; Apparel; Fabricated Metals; and Food. "Manufacturing purchasing and supply executives are more optimistic about their organizations' prospects for the first half of 2003 and predict additional growth during the second half of 2003," said Ore. "At present, the sector continues to struggle as manufacturing is in its third consecutive month of decline as reported in the monthly Manufacturing ISM Report on Business. Manufacturing seemingly has sufficient momentum to avoid a major downturn based on our recent monthly reports in which the sector has essentially moved sideways for five months. This forecast should be received as a source of optimism going into the new year." In the sector, respondents report operating at 79.2 percent of their normal capacity, down slightly from 79.3 percent reported in May 2002. Purchasing and supply executives predict that capital expenditures will increase 4.6 percent in 2003, compared to the 6 percent decrease reported in December 2002. The survey respondents also forecast that they will continue to reduce their purchased inventory to sales ratio, while expecting manufacturing employment to decline by 0.6 percent. They also forecast an average 2.6 percent increase in overall labor and benefits costs for 2003. Manufacturing purchasers are predicting growth in exports and imports, with exports growing at a slightly slower rate while the rate of imports accelerates. They also expect the U.S. dollar to remain strong against the currencies of major trading partners. They predict the prices they pay will increase 0.5 percent during the first four months of 2003 and will increase an additional 1.3 percent for the balance of 2003, resulting in only a moderate change in prices during the upcoming year. Respondents' major concerns are a weak economy, labor and benefits costs, terrorism / threat of war, energy costs and supply, and material shortages. A special question was asked of purchasing and supply executives to determine their progress in achieving efficiency from the application of technology to supply management. While a few companies have managed to move rapidly in this direction, others have made reasonable progress, but the data indicates there is still significant opportunity to improve productivity through technology. Non-Manufacturing Summary "A significant 70 percent of non-manufacturing purchasing and supply executives expect their 2003 revenues to be greater than in 2002. Overall, respondents currently expect a 5.7 percent net increase in overall revenues compared to a 0.9 percent increase reported for 2002," said Kauffman. Non-manufacturing industries expecting the greatest improvement over 2002 are — listed in order — Real Estate; Business Services; Transportation; Communication; and Construction. Non-manufacturing purchasers report operating at 83.9 percent of their normal capacity, somewhat below the 85.6 percent reported in May 2002. They also forecast that they will increase their capacity to produce products and provide services by 4.6 percent during 2003. On the down side, they predict that employment will rise only 0.2 percent in the coming year and they expect capital expenditures to decrease by 0.4 percent, after a decrease of 2.6 percent reported for 2002. Their major economic concerns are labor and benefit costs, weakness in the economy, energy costs, inflation, and terrorism / threat of war. Purchasers in non-manufacturing industries predict that the prices they pay for materials and services will increase by a relatively mild 0.9 percent during 2003, up a bit from 0.5 percent reported for 2002. They also forecast a 1.1 percent increase in their overall labor and benefit costs for 2003. They reported decreased profit margins in the second and third quarters of 2002 but expect margins to increase in the first four months of 2003. Members indicate that they have achieved an average 49 percent of potential benefits from application of technology to supply chains and that use of electronic commerce and e-procurement will be their number one means of improving supply chains in 2003. Overall they expect business in the second half of 2003 to be better than the first half, although they look for the first half of 2003 to be better than the second half of 2002.