US Economic Growth to Continue Throughout 2007
Location: Tempe
Author:
Rose Marie Goupil
Date: Wednesday, May 9, 2007
Economic growth in the United States is sustainable throughout the remainder of 2007, say the nation's purchasing and supply executives in their spring 2007 Semiannual Economic Forecast. Expectations for the remainder of 2007 are encouraging in both the manufacturing and non-manufacturing sectors.
Manufacturing Summary
The survey panel of purchasing and supply management executives remains optimistic with 62 percent of respondents predicting revenues to be greater in 2007 than in 2006. This is reflected in their expectations of a 5.6 percent net increase in revenues for the period. To support the revenue growth expectations, manufacturers expect to increase capital expenditures 5.8 percent for the year in spite of a lower current operating rate of 82.8 percent.
The manufacturing industries expecting the greatest revenue increases in 2007 — listed in order — are: Primary Metals; Miscellaneous Manufacturing(a); Electrical Equipment, Appliances & Components; Chemical Products; Fabricated Metal Products; Plastics & Rubber Products; and Food, Beverage & Tobacco Products. “Respondents are optimistic about their organizations' prospects for 2007," said Ore. “While 2007 appears to be lagging behind the last three years in terms of manufacturing growth, the forecast indicates manufacturers are investing and foresee revenue improvement in their future.”
Non-Manufacturing Summary
Fifty-four percent of non-manufacturing purchasing and supply executives expect their 2007 revenues to be greater than in 2006. They currently expect a 2.1 percent net increase in overall revenues, lower than the 6.4 percent increase that was forecast in December 2006. Non-manufacturing industries expecting greater-than-average revenue in 2007 are: Professional, Scientific & Technical Services; Information; Arts, Entertainment & Recreation; Other Services(b); Health Care & Social Assistance; Retail Trade; Real Estate, Rental & Leasing; and Accommodation & Food Services.
OPERATING RATE
Manufacturing
Purchasing and supply managers report that their companies are currently operating at 82.8 percent of normal capacity, representing a decline from the 84.5 percent reported in December 2006 and the 85.6 percent reported in April 2006, and the lowest since December 2003 when the rate was 80.1 percent. This is consistent with the trend of slower growth in manufacturing as reported in the monthly Manufacturing ISM Report On Business®. The following industries are operating at capacity levels above the average capacity of 82.8 percent: Paper Products; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing(a).
Non-Manufacturing
Non-Manufacturing purchasing and supply executives report that their organizations are currently operating at 84.4 percent of normal capacity. This is lower than the 86.3 percent reported in December 2006 and the 88.4 percent reported in April 2006. The following section of this forecast indicates that non-manufacturing industries are continuing to add capacity in 2007, but at a slower rate. The following industries are operating at capacity levels at or above the average rate of 84.4 percent: Mining; Educational Services; Utilities; Transportation & Warehousing; Public Administration; Information; Finance & Insurance; Retail Trade; Real Estate, Rental & Leasing; and Other Services(b).
| Operating Rate | ||||||||||||||||||||||
| Manufacturing | Non-Manufacturing | |||||||||||||||||||||
| April 2006 |
Dec 2006 |
April 2007 |
April 2006 |
Dec 2006 |
April 2007 |
|||||||||||||||||
| 90%+ | 49% | 42% | 43% | 53% | 56% | 47% | ||||||||||||||||
| 50%-89% | 49% | 56% | 53% | 47% | 43% | 52% | ||||||||||||||||
| Below 50% | 2% | 2% | 4% | 0% | 1% | 1% | ||||||||||||||||
| Est. Overall Average | 85.6% | 84.5% | 82.8% | 88.4% | 86.3% | 84.4% | ||||||||||||||||
PRODUCTION CAPACITY – April 2007
Manufacturing
Production capacity in manufacturing is expected to increase 4 percent in 2007. This is less than the 5.4 percent predicted in December 2006, but significantly better than the 2.7 percent reported in December for 2006. This reflects the current improvement in the sector as 46 percent reported an average capacity increase of 12.8 percent, 10 percent reported decreases averaging 18.9 percent, and 44 percent reported no change. The industries reporting expected production capacity increases at or above 4 percent are: Computer & Electronic Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing(a); Transportation Equipment; and Primary Metals.
| Manufacturing Production Capacity | ||||||||||||
| For 2006 | For 2007 | For 2007 | ||||||||||
| Reported Dec 2006 |
Magnitude of Change |
Predicted Dec 2006 |
Magnitude of Change |
Predicted April 2007 |
Magnitude of Change |
|||||||
| Higher | 44% | + 9.8% | 53% | + 11.0% | 46% | + 12.8% | ||||||
| Same | 43% | NA | 42% | NA | 44% | NA | ||||||
| Lower | 13% | - 11.8% | 5% | - 10.1% | 10% | - 18.9% | ||||||
| Net Average | + 2.7% | + 5.4% | + 4.0% | |||||||||
Non-Manufacturing
The capacity to produce products or provide services in the non-manufacturing sector is expected to increase 3.2 percent during 2007. This compares to an increase of 3 percent reported for 2006 and a prediction in December 2006 of 6.2 percent for 2007. For 2007, 34 percent of non-manufacturing respondents expect their capacity to increase by an average of 13.7 percent, and 7 percent of the respondents foresee their capacity decreasing by an average of 23.1 percent. Fifty-nine percent expect no change in their capacity. The industries expecting to add more than the average 3.2 percent to their production capacity are: Information; Construction; Transportation & Warehousing; Professional, Scientific & Technical Services; Health Care & Social Assistance; Other Services(b); Retail Trade; Real Estate, Rental & Leasing; and Finance & Insurance.
| Non-Manufacturing Production or Provision Capacity | ||||||||||||
| For 2006 | For 2007 | For 2007 | ||||||||||
| Reported Dec 2006 |
Magnitude of Change |
Predicted Dec 2006 |
Magnitude of Change |
Predicted April 2007 |
Magnitude of Change |
|||||||
| Higher | 42% | + 7.4% | 51% | + 12.8% | 34% | + 13.7% | ||||||
| Same | 56% | NA | 45% | NA | 59% | NA | ||||||
| Lower | 2% | - 7.5% | 4% | - 9.5% | 7% | - 23.1% | ||||||
| Net Average | + 3.0% | + 6.2% | + 3.2% | |||||||||
PREDICTED CAPITAL EXPENDITURES — 2007 vs. 2006
Manufacturing
Survey respondents expect a 5.8 percent increase in capital expenditures in 2007. This is less than the December 2006 forecast when members predicted an 8.5 percent increase for 2007. Currently, 35 percent of respondents predict increased capital expenditures in 2007 with an average increase of 32.6 percent, while the 17 percent who said their capital spending would be reduced report an average decrease of 33.6 percent. Forty-eight percent say they will spend the same in 2007 as they did in 2006. Industries predicting an increase above 5.8 percent are: Food, Beverage & Tobacco Products; Primary Metals; Machinery; Fabricated Metal Products; Paper Products; Transportation Equipment; and Electrical Equipment, Appliances & Components.
Non-Manufacturing
Non-manufacturing purchasing and supply executives are expecting to increase their level of capital expenditures 5.6 percent in 2007 compared to 2006. The 43 percent of members expecting to spend more predict and average increase of 24.1 percent. An additional 20 percent anticipate a decrease averaging 23.4 percent. Thirty-seven percent of the respondents expect to spend the same on capital expenditures in 2007 as in 2006. Industries expecting greater than the average 5.6 percent increase in capital expenditures in 2007 are: Health Care & Social Assistance; Educational Services; Utilities; and Accommodation & Food Services.
| Predicted Capital Expenditures 2007 vs. 2006 | ||||||||||||
| Manufacturing | Non-Manufacturing | |||||||||||
|
Predicted Dec 2006 |
Predicted April 2007 |
Magnitude of Change |
Predicted Dec 2006 |
Predicted April 2007 |
Magnitude of Change |
|||||||
| Higher | 44% | 35% | + 32.6% | 50% | 43% | + 24.1% | ||||||
| Same | 39% | 48% | NA | 34% | 37% | NA | ||||||
| Lower | 17% | 17% | - 33.6% | 16% | 20% | - 23.4% | ||||||
| Net Average | + 8.5% | + 5.8% | + 8.2% | + 5.6% | ||||||||
PRICES — Changes Between End of 2006 and April 2007
Manufacturing
In the December 2006 forecast, respondents expected an increase of 1.4 percent in prices paid during the first four months of 2007; however, they now report prices have increased 2.8 percent for the period. The 66 percent who say their prices are higher now than at the end of 2006 report an average increase of 4.9 percent, while the 12 percent who report lower prices report an average decrease of 3.5 percent. The remaining 22 percent indicate no change for the period. Industries reporting increases at or above 2.8 percent in prices paid for the first part of 2007 are: Primary Metals; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Textile Mills; Chemical Products; and Fabricated Metal Products.
Non-Manufacturing
Non-Manufacturing respondents report that their purchases in the first four months of this year cost an average of 2.6 percent more than they cost at the end of 2006. This is 0.5 percent below the 3.1 percent predicted for this period in December 2006. Sixty-seven percent of the non-manufacturing respondents report the prices they paid increased an average of 5.5 percent in the first part of 2007. Seven percent report price decreases averaging 16.1 percent. The remaining twenty-six percent indicate no change in prices in the first four months of 2007. Industries reporting a greater-than-average increase in prices they paid in the first part of 2007 are: Real Estate, Rental & Leasing; Mining; Educational Services; Professional, Scientific & Technical Services; Arts, Entertainment & Recreation; Public Administration; Other Services(b); Utilities; and Retail Trade.
| Prices – Changes Between End of 2006 and April 2007 | ||||||||||||
| Manufacturing | Non-Manufacturing | |||||||||||
|
Predicted Dec 2006 |
Reported April 2007 |
Magnitude of Change |
Predicted Dec 2006 |
Reported April 2007 |
Magnitude of Change |
|||||||
| Higher | 49% | 66% | + 4.9% | 64% | 67% | + 5.5% | ||||||
| Same | 30% | 22% | NA | 27% | 26% | NA | ||||||
| Lower | 21% | 12% | - 3.5% | 9% | 7% | - 16.1% | ||||||
| Net Average | + 1.4% | + 2.8% | + 3.1% | + 2.6% | ||||||||
PRICES — Predicted Changes Between End of 2006 and End of 2007
Manufacturing
When asked to predict 2007 price changes, 77 percent of respondents expect prices they pay to increase by 5.4 percent. At the same time, 12 percent anticipate decreases averaging 6 percent. Including the 11 percent who expect no change in prices, survey respondents expect net average prices to increase 3.5 percent for 2007, which is greater than the December 2006 prediction of 1.1 percent. Industries predicting increases in prices greater than 3.5 percent for all of 2007 are: Primary Metals; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Textile Mills; Fabricated Metal Products; and Chemical Products.
Non-Manufacturing
Non-manufacturing respondents expect prices they pay to increase an average of 3.2 percent over the entire year. Seventy-two percent of the respondents anticipate price increases averaging 5.9 percent. Eight percent of the respondents expect decreases of 13.8 percent, and 20 percent do not expect prices to change. Industries expecting higher-than-average rates of price increases in 2007 are: Real Estate, Rental & Leasing; Mining; Public Administration; Arts, Entertainment & Recreation; Other Services(b); Utilities; Accommodation & Food Services; Retail Trade; and Professional, Scientific & Technical Services.
| Prices – Predicted Changes Between End of 2006 and End of 2007 | ||||||||||||
| Manufacturing | Non-Manufacturing | |||||||||||
|
Predicted Dec 2006 |
Predicted April 2007 |
Magnitude of Change |
Predicted Dec 2006 |
Predicted April 2007 |
Magnitude of Change |
|||||||
| Higher | 55% | 77% | + 5.4% | 75% | 72% | + 5.9% | ||||||
| Same | 19% | 11% | NA | 16% | 20% | NA | ||||||
| Lower | 26% | 12% | - 6.0% | 9% | 8% | - 13.8% | ||||||
| Net Average | + 1.1% | + 3.5% | + 4.0% | + 3.2% | ||||||||
EMPLOYMENT
Change in Overall Employment – Balance 2007
Manufacturing
ISM’s Manufacturing Business Survey respondents forecast that manufacturing employment will increase 0.5 percent in 2007, with 25 percent expecting employment to be 7.2 percent higher. This is in contrast to the 16 percent who predict employment to be lower by 7.7 percent. The remaining 59 percent of respondents expect their employment levels to be unchanged in 2007. Industries reporting expectations for greater than 0.5 percent growth in employment during the year are: Fabricated Metal Products; Transportation Equipment; Miscellaneous Manufacturing(a); Computer & Electronic Products; Chemical Products; and Food, Beverage & Tobacco Products.
Non-Manufacturing
ISM’s Non-Manufacturing Business Survey Committee members forecast that employment will increase 0.5 percent during the balance of 2007. For the remaining months of 2007, 31 percent expect higher levels of employment, 15 percent anticipate lower levels, and 54 percent expect their employment levels to be unchanged. Industries anticipating above average increases in their employment in the coming months of 2007 are: Arts, Entertainment & Recreation; Health Care & Social Assistance; Utilities; Finance & Insurance; Transportation & Warehousing; Other Services(b); Professional, Scientific & Technical Services; Construction; Management of Companies & Support Services; and Educational Services.
| Predicted Change in Overall Employment | ||||||||||||
| Manufacturing | Non-Manufacturing | |||||||||||
|
Predicted for 2007 Dec 2006 |
Balance
of 2007 April 2007 |
Nominal Change |
Predicted for 2007 Dec 2006 |
Balance of 2007 April 2007 |
Nominal Change |
|||||||
| Higher | 31% | 25% | + 7.2% | 43% | 31% | + 7.1% | ||||||
| Same | 44% | 59% | NA | 42% | 54% | NA | ||||||
| Lower | 25% | 16% | - 7.7% | 15% | 15% | - 11.4% | ||||||
| Net Average | + 0.1% | + 0.5% | + 1.6% | + 0.5% | ||||||||
| Diffusion Index | 53% | 54.5% | 64% | 58% | ||||||||
BUSINESS REVENUES
Business Revenues Comparison — 2007 vs. 2006
Manufacturing
Looking ahead, expectations are for increased revenues in 2007 as purchasing and supply management executives indicate an overall net nominal increase of 5.6 percent in business revenues for 2007 over 2006. This is less than the 6.4 percent increase that was forecast in December 2006 for all of 2007, and less than the 6.2 percent reported for 2006, but still a significant year-over-year improvement. Sixty-two percent of respondents say that nominal revenues (before adjusting for inflation) will increase an average of 12.2 percent over 2006. Conversely, 16 percent say their nominal revenues will decrease an average of 12 percent, and the remaining 22 percent indicate no change. The industries expecting revenue gains of 5.6 percent or higher in 2007 are: Primary Metals; Miscellaneous Manufacturing(a); Electrical Equipment, Appliances & Components; Chemical Products; Fabricated Metal Products; Plastics & Rubber Products; and Food, Beverage & Tobacco Products.
| Manufacturing Business Revenues | ||||||||||||
| 2006 vs 2005 | 2007 vs 2006 | |||||||||||
| Reported Dec 2006 |
Nominal % Change |
Predicted Dec 2006 |
Nominal % Change |
Predicted April 2007 |
Nominal % Change |
|||||||
| Higher | 66% | + 12.4% | 72% | + 10.7% | 62% | + 12.2% | ||||||
| Same | 15% | NA | 17% | NA | 22% | NA | ||||||
| Lower | 19% | - 10.5% | 11% | - 12.7% | 16% | - 12% | ||||||
| Net Average | + 6.2% | + 6.4% | ||||||||||
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