Manufacturing to grow 5.7 percent in 2010

Friday, December 11, 2009

Economic growth in the United States will resume in 2010, according to the Institute for Supply Management (ISM) in their December 2009 Semiannual Economic Forecast. Manufacturing revenues will grow 5.7 percent in 2010 compared to a 10.7 percent decrease in 2009. Expectations for 2010 are for the positive conditions experienced in the second half of 2009 to continue in manufacturing, while the non-manufacturing sector foresees marginal growth.

The overall forecast projects optimism about the U.S. economy for 2010. The manufacturing sector overall is positive about prospects in 2010 with revenues expected to increase in 13 of 18 industries, while the non-manufacturing sector appears slightly less positive about the year ahead with 8 of 18 industries expecting higher revenues. Business investment, a major driver in the U.S. economy, will decline as both sectors expect a combined average of a 5.4 percent decline in capital spending.

The 13 manufacturing industries expecting improvement over 2009 — listed in order — are: Transportation Equipment; Nonmetallic Mineral Products; Printing & Related Support Activities; Computer & Electronic Products; Paper Products; Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Chemical Products; Machinery; Miscellaneous Manufacturing*; Textile Mills; and Fabricated Metal Products.

"Manufacturing purchasing and supply executives reflect more of their typical optimism about their organizations' prospects as they consider the first half of 2010,and they are even more positive about the second half," said Norbert J. Ore, CPSM, C.P.M., chair of the ISM Manufacturing Business Survey Committee. "While 2009 has been a challenging year overall, we are in a growth trend as we approach the end of the year. Respondents expect cost pressures to be low to moderate based on their price forecast. Manufacturing growth is now in its fourth consecutive month as measured by and reported in the monthly Manufacturing ISM Report On Business®."

In the manufacturing sector, respondents report operating at 70.1 percent of their normal capacity, up from 67 percent reported in April 2009. Purchasing and supply executives predict that capital expenditures will decrease by 4 percent in 2010, compared to a 7.8 percent decrease reported for 2009. Survey respondents also forecast that they will reduce inventories in an effort to improve their purchased inventory-to-sales ratio in 2010. Manufacturers have an expectation that employment in the sector will increase by 1.5 percent, while labor and benefits costs are expected to increase an average of 1.4 percent in 2010. Manufacturing purchasers are predicting strength in exports and imports in 2010. They also expect the U.S. dollar to weaken on average against the currencies of major trading partners.

Purchasing and supply executives are more optimistic about the second half of 2010 compared to the first half of the year. The percentage of survey respondents who forecast the second half of 2010 to be better than the first half is 50 percent, while 3 percent expect it to be worse, and 47 percent expect no change. The 15 industries predicting improvement in the second half of 2010 — listed in order — are: Transportation Equipment; Nonmetallic Mineral Products; Wood Products; Miscellaneous Manufacturing*; Printing & Related Support Activities; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Primary Metals; Furniture & Related Products; Paper Products; Chemical Products; Machinery; and Computer & Electronic Products

The panel also predicts the prices they pay will increase 0.2 percent during the first four months of 2010, and will increase an additional 2.4 percent during the balance of 2010, with an overall increase of 2.6 percent for 2010. Respondents' major concerns are: weak economy; credit crisis; taxes; interest rates; and high energy costs. Survey respondents expect to realize supply chain improvements through supplier consolidation; new or improved enterprise technology and system utilization; improved inventory/asset management; lean manufacturing; and cost reduction.

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