Les responsables des achats américains confiants dans la croissance

Une étude récente de l’Institute for Supply Management (ISM) reste optimiste sur la croissance aux Etats-Unis pour 2006.

L’étude basée sur un sondage des responsables achats de grands groupes révèle une augmentation des achats industriels qui devrait prolonger la forte croissance enregistrée en 2005. Toutefois, le coût de l’énergie s'érige comme le principal souci des acheteurs.

HM - Costkiller.net

ECONOMIC GROWTH TO CONTINUE IN 2006

Manufacturing Expansion Continues
Revenue to Grow 5.4%
Capital Spending to Increase 9%
Capacity Utilization at 85.3%

Non-Manufacturing to Maintain Strength
Revenue Growth to be 6.6%
Capital Spending Up 11.1%
Capacity Utilization at 87%

(New York, NY) - Economic growth in the United States will continue in 2006, say the nation's purchasing and supply management executives in their 70th Semiannual Economic Forecast.

Expectations for 2006 are at relatively high levels for both manufacturing and non-manufacturing sectors. While both sectors are optimistic about 2006, revenues are expected to grow more strongly in non-manufacturing industries than in the manufacturing sector.

These projections are part of the forecast issued by the Business Survey Committee of the Institute for Supply ManagementT (ISM). The forecast was released 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 supply chain management program at the University of Houston-Downtown.

Manufacturing Summary

Expectations for 2006 are high as 75 percent of survey respondents expect revenues to be greater in 2006 than in 2005. The panel of purchasing and supply executives expects a 5.4 percent net increase in overall revenues for 2006, compared to an increase of 7.3 percent increase reported for 2005. Manufacturing industries expecting the greatest improvement over 2005 are - listed in order - Electronic Components & Equipment; Glass, Stone & Aggregate; Chemicals; Apparel; Fabricated Metals; Transportation & Equipment; Textiles; Rubber & Plastic Products; and Primary Metals.

"Manufacturing purchasing and supply executives are optimistic about their organizations' prospects for the first half of 2006, and predict additional growth during the second half, but at a slightly slower rate" said Ore. "While 2005 has been a particularly strong year overall, it has presented challenges with regard to inflationary pressures on manufacturing costs. Respondents now expect those pressures to subside somewhat in 2006 based on their overall price forecast. Manufacturing has gained momentum in the past several months with significant strength in new orders and production, and is in its 30th consecutive month of growth as reported in the monthly Manufacturing ISM Report On Business®."

In the manufacturing sector, respondents report operating at 85.3 percent of their normal capacity, down from 86.8 percent reported in May 2005. Purchasing and supply executives predict that capital expenditures will increase by 9 percent in 2006, compared to a 19 percent increase reported for 2005. Survey respondents also forecast that they will decrease their purchased inventory-to-sales ratio in 2006. Manufacturers have an expectation that employment in the sector will grow by 1.3 percent, while labor and benefits costs are expected to increase an average of 2.7 percent. Manufacturing purchasers are predicting growth in exports and imports. They also expect the U.S. dollar to strengthen somewhat against currencies of major trading partners.

The panel also predicts the prices they pay will increase 3.5 percent during the first four months of 2006, and will increase an additional 0.3 percent for the balance of 2006. Respondents' major concerns are: energy cost and supply; oil and petroleum-based products; inflation; labor and benefits costs; and continuity of supply and shortages.

A special question was asked to determine the respondents' progress in achieving efficiency from the application of technology to supply management. While a few companies rate themselves as being almost finished, 80 percent are less than three-fourths complete in achieving efficiency from the application of technology, while 46 percent indicate they are less than 50 percent complete. Members expect to realize supply chain improvements through new or improved enterprise technology; improved forecasting and planning; supplier consolidation; improved inventory management; and application of lean manufacturing concepts to supply chain.

Non-Manufacturing Summary

Seventy-four percent of non-manufacturing supply management executives expect their 2006 revenues to be greater than in 2005. They currently expect a 6.6 percent net increase in overall revenues compared to a 5.8 percent increase reported for 2005. Non-manufacturing industries expecting the greatest improvement over 2005 are - listed in order - Communication; Business Services; Wholesale Trade; Retail Trade; Transportation; Construction; and Utilities.

"Non-manufacturing supply managers report operating at 87 percent of their normal capacity, slightly above the 86.9 percent reported in May 2005. While they are optimistic about continued growth in the first half of 2006 compared to the second half of 2005, they have a lower level of overall optimism about the next 12 months than they had for 2005 last December," said Kauffman. "They forecast that their capacity to produce products and provide services will rise by 3.7 percent during 2006, and that capital expenditures will increase by a significant 11.1 percent above the 2005 level. Non-manufacturers also predict that their employment will grow by 2.3 percent during 2006. Their major economic concerns are: energy cost and supply; price increases and inflation; labor and benefit costs; higher interest rates; and continuity of supply and shortages."

ISM members in non-manufacturing industries expect that the prices they pay for materials and services will increase by 4 percent during 2006. They also forecast a 3.6 percent increase in their overall labor and benefit costs for 2006. Profit margins are reported to have increased moderately in the second and third quarters of 2005, and members expect them to rise additionally between now and April 2006. Members indicate that they have achieved an average 52 percent of potential benefits from application of technology to supply chains and that application of new and/or improved technology is their number one means of improving supply chains in 2006. Other improvement approaches include: supplier consolidation; increased use of e-procurement processes; improved or revised supplier relationships; and improved supply chain processes.

OPERATING RATE

Manufacturing

Manufacturing purchasing and supply executives report that their companies are currently operating at 85.3 percent of normal capacity. This is a decrease when compared to May 2005 (86.8 percent) and greater than the rate reported in December 2004 (83 percent), and less than the 10-year high reported in May 2000 (87.4 percent). Recent monthly data from the Manufacturing ISM Report On Business® indicates the manufacturing sector has grown for 30 consecutive months. The following nine industries are operating at or above the average capacity of 85.3 percent: Wood & Wood Products; Furniture; Paper; Primary Metals; Printing & Publishing; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Textiles; and Glass, Stone & Aggregate.

Non-Manufacturing

Non-manufacturing supply executives report that their organizations are currently operating at 87 percent of normal capacity. This is slightly higher than the 86.9 percent reported in May 2005, and slightly lower than the 88.2 percent reported in December 2004. 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 87 percent: Legal Services; Transportation; Mining; Utilities; Real Estate; Insurance; Public Administration; and Health Services.

PRODUCTION CAPACITY

Manufacturing

Production capacity in manufacturing increased 5.3 percent in 2005 as 51 percent of purchasing and supply executives reported an average capacity increase of 14.5 percent, 7 percent reported decreases averaging 30.2 percent, and 42 percent reported no change. This compares to a predicted increase of 6 percent for 2005 made in May 2005. Expectations for 2006 are for an increase of 5.3 percent. The following seven industries report at or above the average 5.3 percent increase in 2005: Food; Electronic Components & Equipment; Fabricated Metals; Transportation & Equipment; Wood & Wood Products; Furniture; and Industrial & Commercial Equipment & Computers.

The principal means of achieving increases in production capacity in 2005 were (in order of importance):

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

Non-Manufacturing

The capacity to produce products or provide services in the non-manufacturing sector increased 2.9 percent during 2005. This is slightly less than the 3.1 percent increase reported in December 2004 for 2004, and is less than the prediction in May 2005 of a 3.5 percent increase in 2005. For 2006 a larger increase (3.7 percent) is predicted. For 2005, 40 percent of non-manufacturing supply managers indicate increases averaging 8 percent, and 3 percent of respondents indicate decreases averaging 10 percent. Fifty-seven percent see no change in their capacity. The industries reporting increases of more than the 2.9 percent average increase in capacity in 2005 are: Transportation; Health Services; Entertainment; Finance & Banking; Business Services; Retail Trade; and Other Services**.

The principal means of achieving increases in production capacity in 2005 were (in order of importance):

1. Additional personnel (permanent or temporary or contract)
2. Replaced equipment with technically advanced equipment
3. More hours worked with existing personnel
4. Additional plant and/or equipment
5. More shifts worked with existing personnel

CAPITAL EXPENDITURES - 2005 vs. 2004

Manufacturing

Purchasing and supply managers report 2005 capital expenditures rose 19 percent when compared to 2004 levels. The showing for 2005 does exceed members' expectations as they predicted an increase of 9.8 percent for 2005 in May 2005. The 47 percent of purchasers who reported increased capital expenditures in 2005 indicated an average increase of 50.1 percent, while the 16 percent who said their capital spending was reduced reported an average decrease of 31.2 percent. Thirty-seven percent said they spent the same in 2005 as in 2004. Industries showing the largest increases in capital expenditures for 2005 - in order of percentage increase - are: Primary Metals; Food; Industrial & Commercial Equipment & Computers; Transportation & Equipment; Fabricated Metals; Rubber & Plastic Products; Electronic Components & Equipment; Furniture; and Wood & Wood Products.

Non-Manufacturing

Non-manufacturing supply management executives report their level of capital expenditures in 2005 compared to 2004 rose by 5.3 percent. This is greater than the 1.4 percent increase predicted by members in May 2005, and is also larger than the 4.5 percent increase reported for 2004 one year ago. Forty-eight percent of members report increases averaging 17.2 percent. An additional 9 percent report decreases averaging 31.2 percent. However, another 43 percent indicate they spent the same on capital expenditures in 2005 as in 2004. Industries experiencing above average increases in capital expenditures in 2005 are: Other Services**; Utilities; Legal Services; Agriculture; Mining; Finance & Banking; Real Estate; Communication; and Health Services.

PREDICTED CAPITAL EXPENDITURES - 2006 vs. 2005

Manufacturing

Purchasing and supply executives expect capital expenditures to rise 9 percent in 2006. The 43 percent of respondents who predict increased capital expenditures in 2006 indicate an average increase of 34.5 percent, while the 19 percent who said their capital spending would be reduced predict an average decrease of 30.6 percent; 38 percent said they expect to spend the same in 2006 as in 2005. Industries predicting the largest increases in capital expenditures for 2006 - in order of percentage increase - are: Food; Wood & Wood Products; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Miscellaneous*; Primary Metals; and Paper.

Non-Manufacturing

Looking out into 2006, non-manufacturing purchasing and supply executives are expecting a much higher increase (11.1 percent) in capital expenditures than they are reporting for 2005 (5.3 percent). The 56 percent of respondents expecting to spend more in 2006 predict an average increase of 24.1 percent. An additional 12 percent anticipate a decrease averaging 21.2 percent. Thirty-two percent expect to spend the same on capital expenditures in 2006 as in 2005. Industries expecting above average increases in capital expenditures in 2006 are: Retail Trade; Transportation; Utilities; Finance & Banking; and Other Services**.

PRICES - Changes Between End of 2004 and End of 2005

Manufacturing

After an initial forecast in May 2005 of a 5.2 percent increase in prices paid, survey respondents now report realized price increases averaging 6.4 percent for the year. The 81 percent who say their prices are higher now than at the end of 2004 report an average increase of 9.2 percent, while the 13 percent who report lower prices averaged an 8.8 percent decrease. The remaining 6 percent indicate no change between the end of 2004 and the end of 2005. Industries experiencing higher-than-average price increases are: Glass, Stone & Aggregate; Rubber & Plastic Products; Textiles; Primary Metals; Apparel; Paper; Miscellaneous*; and Chemicals.

Non-Manufacturing

As 2005 draws to a close, non-manufacturing supply managers report prices they pay have increased by 5.3 percent over the entire year. This is slightly less than the 5.5 percent increase they predicted in May 2005, but greater than the 4.8 percent increase reported one year ago for 2004. Seventy-five percent of purchasers report price increases averaging 7.8 percent. Eight percent of purchasers indicate decreased prices with an average reduction of 7.4 percent, and 17 percent of members have not experienced an overall price change this year. Industries reporting above average rates of price increases in 2005 are: Communication; Wholesale Trade; Utilities; Agriculture; Construction; and Public Administration.

PRICES - Predicted Changes Between End of 2005 and April 2006

Manufacturing

Sixty-nine percent of purchasing and supply managers expect the prices they pay to increase in the first part of 2006 by an average of 5.8 percent. At the same time, 14 percent anticipate decreases averaging 3.9 percent. Including the 17 percent who expect no change in prices in the first four months of 2006, purchasers expect the net average overall price change to increase 3.5 percent for the period. Six industries predict above average increases in prices paid for the first part of 2006: Glass, Stone & Aggregate; Rubber & Plastic Products; Food; Paper; Textiles; and Chemicals.

Non-Manufacturing

Non-manufacturing members predict that their purchases in the first four months of 2006 will cost an average of 3.4 percent more than at the end of 2005. This is less than the increase reported in the preceding section for all of 2005. Considering the prediction of price change for all of 2006 in the next section, purchase and supply executives apparently expect most of 2006's price increases to occur in the first part of the year. Seventy percent of non-manufacturing members predict the prices they pay will increase an average of 5.5 percent in the first part of 2006. Also, 8 percent expect price decreases averaging 6.1 percent. The remaining 22 percent indicate no change in prices in the first four months of 2006. Industries predicting above average increases in prices they expect to pay in the first part of 2006 are: Construction; Utilities; Agriculture; Legal Services; Insurance; Business Services; Other Services**; Public Administration; Finance & Banking; Communication; and Health Services.

PRICES - Predicted Changes Between End of 2005 and End of 2006

Manufacturing

The forecast indicates respondents expect higher prices in 2006 with 71 percent expecting an average price increase of 6.7 percent, while 18 percent expect an average decline of 5.4 percent. The remaining 11 percent expect no change in their average prices paid for the coming year. The net average of the responses indicates an increase of 3.8 percent overall by the end of 2006. Industries expecting to pay above average prices by the end of 2006 are: Glass, Stone & Aggregate; Rubber & Plastic Products; Paper; Chemicals; and Food.

Non-Manufacturing

For all of 2006, non-manufacturing supply management executives expect their prices to rise an average 4 percent. Seventy-three percent expect increases averaging 6.3 percent, 9 percent anticipate prices to drop an average 6.5 percent, and 18 percent foresee no change in prices during the next year. Industries expecting to pay above average price increases by the end of 2006 are: Construction; Utilities; Agriculture; Finance & Banking; Legal Services; Insurance; Business Services; and Health Services.

LABOR AND BENEFIT COSTS - Predicted Rate Change End of 2005 vs. End of 2006

Manufacturing

Purchasing and supply executives' expect higher overall labor and benefit costs for 2006. Eighty-one percent of members expect increased labor and benefit costs and expect them to grow by an average of 4.3 percent for all of 2006, while the 4 percent forecasting lower costs see them decreasing by an average of 18.3 percent. Considering the 15 percent of respondents who believe costs will remain stable, the expected overall net rate of increase is 2.7 percent between the end of 2005 and the end of 2006. Industries expecting to pay 2.7 percent or higher are: Textiles; Miscellaneous*; Rubber & Plastic Products; Paper; Electronic Components & Equipment; Transportation & Equipment; Industrial & Commercial Equipment & Computers; Wood & Wood Products; Primary Metals; Furniture; and Chemicals.

Non-Manufacturing

Supply executives' expectation for change in labor and benefit costs for non-manufacturing industries in 2006 is an increase of 3.6 percent. Seventy-three percent of respondents expect such costs to increase by an average 5.1 percent. Another 4 percent of purchasers expect labor and benefit costs to shrink by an average 5.6 percent, and 23 percent believe costs will remain stable during 2006. Industries expecting average or above increases in labor and benefit costs in 2006 over 2005 are: Communication; Utilities; Health Services; Construction; Business Services; Agriculture; Finance & Banking; and Wholesale Trade.

EMPLOYMENT

Change in Overall Employment

Manufacturing

ISM's Manufacturing Business Survey Committee members forecast that manufacturing employment will increase by 1.3 percent in 2006. Thirty-one percent expect employment to be 9.7 percent higher while 15 percent predict employment to be lower by 12.5 percent. The remaining 54 percent of members expect their employment levels to be unchanged in 2006. The six industries predicting 1.3 percent growth or greater in employment are: Transportation & Equipment; Glass, Stone & Aggregate; Electronic Components & Equipment; Fabricated Metals; Primary Metals; and Miscellaneous*.

Non-Manufacturing

ISM's Non-Manufacturing Business Survey Committee members report that non-manufacturing employment has increased 1.5 percent since April 2005. Looking ahead to 2006, they forecast that employment will increase 2.3 percent by year-end. For 2006, 41 percent expect higher levels of employment, 9 percent of members anticipate lower levels, and 50 percent expect their employment levels to be unchanged. Industries anticipating above average increases in their employment in 2006 are: Utilities; Communication; Construction; Business Services; Finance & Banking; Retail Trade; and Health Services.

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 2006)

Manufacturing

The responses for this semiannual report indicate purchasers are feeling optimistic about new export orders for the first half of 2006. This is consistent with the most recent ISM New Export Orders Index data in the monthly Manufacturing ISM Report On Business®, which has shown a faster rate of growth in new export orders. Of the 74 percent of members who export, 56 percent predict an increase (48 percent moderate and 8 percent substantial) over the next half year. Additionally, 6 percent (5 percent moderate, 1 percent substantial) see a decrease in their exports and 38 percent anticipate no change in exports over the next half year. Seven industries expect above average growth in exports: Textiles; Miscellaneous*; Chemicals; Electronic Components & Equipment; Primary Metals; Fabricated Metals; and Industrial & Commercial Equipment & Computers.

Non-Manufacturing

For the next half year, 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 22 percent of non-manufacturing business survey respondents who report that they export, 52 percent predict an increase (52 percent moderate and 0 percent substantial) over the next half year. Six percent of members see a decrease in their exports (6 percent moderate and 0 percent substantial), and 42 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 2006: Finance & Banking; Utilities; Wholesale Trade; Other Services**; Entertainment; Mining; and Retail Trade.

IMPORT BUSINESS - Predicted Change for Next Half Year (First Half of 2006)

Manufacturing

Purchasers expect continued growth in imports in the first half of 2006 indicating that imports are occurring at the same rate as reported in the December 2004 forecast. Of the 81 percent of purchasers who reported they import, 62 percent predict an increase in their imports over the next half year (51 percent moderate and 11 percent substantial), while 7 percent predict a decrease in imports of materials (6 percent moderate and 1 percent substantial). Less than one-third of survey members (31 percent) expect no change in imports. Industries expecting above average growth in imports are: Miscellaneous*; Textiles; Glass, Stone & Aggregate; Apparel; Industrial & Commercial Equipment & Computers; Fabricated Metals; Furniture; and Electronic Components & Equipment.

Non-Manufacturing

Non-manufacturers have higher expectations for use of imports for the next half year than they did in December 2004 for the first half of 2005. Of the 41 percent of non-manufacturing organizations who reported they import, 50 percent (37 percent moderate and 13 percent substantial) predict an increase in their imports during the first half of 2006. Five percent (3 percent moderate and 2 percent substantial) predict a decrease in imports of materials and services. The remaining 45 percent of purchasers expect no change in imports over the next half year. Industries expecting growth in imports are: Communication; Construction; Finance & Banking; Insurance; Transportation; Wholesale Trade; Utilities; Retail Trade; Other Services**; Entertainment; and Public Administration.

BUSINESS REVENUES

Business Revenues Comparison - 2005 vs. 2004

Manufacturing

Summarizing revenues for 2005, 71 percent say revenue was better than 2004, and that their nominal (before adjusting for inflation) revenues increased an average of 13.8 percent over 2004. Conversely, 15 percent say their nominal revenues decreased in 2005 by an average of 17.6 percent, and the remaining 14 percent indicate no change. Purchasing and supply executives indicate an overall net nominal increase of 7.3 percent in business revenues for 2005 over 2004. This is higher than the 6.8 percent increase that was forecast in May 2005 for all of 2005, and lower than the 7.8 percent increase predicted in December 2004 for all of 2005.

Non-Manufacturing

Non-manufacturing supply management executives report that business revenues for 2005 are improved over 2004 by 5.8 percent. This is slightly higher than the 5.3 percent increase predicted in May 2005 for 2005 but somewhat lower than the 6.4 percent increase reported one year ago for 2004 revenues over 2003 revenues. The 69 percent of members reporting better business in 2005 than in 2004 estimate an average nominal (before adjusting for inflation) revenue increase of 9.9 percent. This compares to an average nominal decrease of 9.4 percent reported by the 11 percent who indicate worse business in 2005. The remaining 20 percent have experienced no change in 2005. Industries reporting above average increases in revenues in 2005 are: Mining; Communication; Finance & Banking; Health Services; Utilities; Business Services; Wholesale Trade; Retail Trade; Insurance; Transportation; and Entertainment.

Business Revenues Prediction for 2006

Manufacturing

Purchasers forecast that 2006 will be better than 2005. The 75 percent of members forecasting better business in 2006 than in 2005 estimate an average nominal (before adjusting for inflation) increase of 9.4 percent in their companies' revenues. This compares to an average nominal decrease of 19.8 percent forecast by the 8 percent who predict worse business in 2006. Including the 17 percent who see no change in 2006, the forecast for overall net nominal growth in business revenues for 2006 over 2005 is 5.4 percent. The industries predicting a greater than the average 5.4 percent increase in nominal revenues in 2006 are: Electronic Components & Equipment; Glass, Stone & Aggregate; Chemicals; Apparel; Fabricated Metals; Transportation & Equipment; Textiles; Rubber & Plastic Products; and Primary Metals.

Non-Manufacturing

Non-manufacturing ISM members forecast that business revenues for 2006 will be improved over 2005 by an average of 6.6 percent. This is higher than the 5.8 percent increase reported for 2005 and also higher than the 6.4 percent increase reported one year ago for 2004 revenues over 2003 revenues. The 74 percent of members forecasting better business in 2006 than in 2005 estimate an average nominal (before adjusting for inflation) revenue increase of 9.4 percent. This compares to an average nominal decrease of 6.6 percent forecast by the 4 percent who predict worse business in 2006. The remaining 22 percent see no change in 2006. Industries expecting above average increases in revenues in 2006 are: Communication; Business Services; Wholesale Trade; Retail Trade; Transportation; Construction; and Utilities.

PROFIT MARGINS

Manufacturing

Survey respondents report that profit margins have stayed the same on average during the second and third quarters of 2005 as 37 percent experienced an increase in profit margins, an almost equal number (38 percent) had lower margins, and 25 percent reported no change. However, their expectations are for improvement between now and April of 2006. Thirty-nine percent predict better profits margins, 17 percent predict lower margins, and 44 percent predict no change.

Non-Manufacturing

Non-manufacturing supply management executives were asked about changes in profit margins that their organizations recently experienced or were expecting in the near future. Their response indicated that 32 percent experienced an increase in profit margins during the April 2005 to September 2005 period, while 27 percent found smaller profit margins and 41 percent had no change in margins during the same period. Looking ahead over the November 2005 to April 2006 period, 29 percent of supply managers expect improved margins, only 14 percent expect lower profit margins, and the remaining 57 percent of members anticipate no change in their profit margins.

BUSINESS COMPARISON

The First Half of 2006 with Last Half of 2005

Manufacturing

Looking ahead to the first half of 2006, members are optimistic about the next half year. Comparing their outlook for the first half of 2006 to the last half of 2005, 52 percent predict it will be better, 12 percent predict it will be worse, and 36 percent expect no change. Compared to the diffusion index for the same relative prediction one year ago (68.5 percent), members are more optimistic about prospects in the manufacturing sector for the first half-year (70 percent). The industries expecting above average optimism are: Apparel; Miscellaneous*; Textiles; Electronic Components & Equipment; Fabricated Metals; Transportation & Equipment; Rubber & Plastic Products; Primary Metals; Chemicals; and Food.

Non-Manufacturing

The first half of 2006 is looking better than the last half of 2005, according to non-manufacturing purchasing and supply managers. The diffusion index indicating current expectations is 69.5 percent. Forty-nine percent of members expect the first half of next year to be better than the last half of this year, 10 percent anticipate it will be worse, and 41 percent predict no change. The industries expecting the most improvement in the first half of 2006 are: Construction; Legal Services; Utilities; Entertainment; Transportation; Communication; and Mining.

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 2006 with the First Half of 2006

Manufacturing

Purchasing and supply executives are slightly less optimistic about the second half of 2006 compared to the first half of the year. The proportion of members who forecast the second half of 2006 to be better than the first half is 44 percent, while 13 percent expect it to be worse, and 43 percent expect no change. Compared to the diffusion index for the same relative prediction one year ago (69 percent), members are less optimistic about prospects in the manufacturing sector for the second half of 2006 (65.5 percent). The industries predicting the largest rate of improvement in the second half of 2006 are: Instruments & Photographic Equipment; Rubber & Plastic Products; Printing & Publishing; Miscellaneous*; Industrial & Commercial Equipment & Computers; Transportation & Equipment; Furniture; Textiles; and Chemicals.

Non-Manufacturing

Comparing the second half of 2006 to the first half, non-manufacturing purchasing and supply executives feel slightly less optimism than they do for the first half of the year compared to the last half of 2005 (diffusion index of 68 percent compared to 69.5 percent). The proportion of members who currently forecast the second half of 2006 to be better than the first half is 43 percent, while 7 percent expect it to be worse. An additional 50 percent of purchasers expect no change. The industries expecting the greatest improvement in the second half of the year are: Legal Services; Health Services; Retail Trade; Construction; and Mining.

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 2006

Manufacturing

In response to a special question regarding supply chain optimization, 74 percent of purchasing and supply executives plan to take new steps in 2006 to improve their supply chain management practices. New or improved enterprise technology is at the top of the list for 2006. Improved forecasting and planning is second on the list. Supplier consolidation; improved inventory management; and application of lean manufacturing concepts to supply chain are the other major issues of concern to supply managers. The five most popular approaches are listed below:

1. New or improved enterprise technology
2. Improved forecasting and planning
3. Supplier consolidation
4. Improved inventory management
5. Application of lean manufacturing concepts to supply chain

Non-Manufacturing

Responding to a special question regarding supply chain improvements in 2006, 71 percent of members stated that they plan to take steps during the current year to improve their supply chain management practices. Members' first choice is application of new and/or improved technology. Following that preference, members indicated supplier consolidation and increased use of e-procurement processes as their second and third choices. The five most popular approaches are listed below:

1. Application of new and/or improved technology
2. Supplier consolidation
3. Increased use of e-procurement processes
4. Improved/revised supplier relationships
5. Improvements in supply chain processes

INVENTORY-TO-SALES RATIO

Manufacturing

Purchasers will be decreasing inventory on hand to support their planned level of sales during 2006. In this forecast, 16 percent expect to increase their purchased inventory-to-sales ratio during 2006. This compares to 23 percent who expect the ratio to decrease and 61 percent who predict no change.

Non-Manufacturing

Of the 64 percent of non-manufacturing purchasers who answered this question, 14 percent anticipate increasing their purchased inventory-to-sales ratio during 2006. An additional 12 percent expect their ratio to drop and 74 percent see no change. The diffusion index of 51 percent suggests continued building of inventories in 2006 but at a relatively slow rate of increase.

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 2006. They responded decidedly that energy cost and supply is their major concern as it has implications to almost every manufacturer. This concern is reinforced as they selected oil and petroleum-based products as their second concern, and inflation in the cost of goods and services as their third concern, followed by labor and benefits costs, and continuity of supply and shortages. The top five responses are:

Economic Concerns for Manufacturing Sector

1. Energy Cost and Supply
2. Oil and Petroleum-Based Products
3. Inflation
4. Labor and Benefits Costs
5. Continuity of Supply and Shortages

Non-Manufacturing

The number one economic concern of non-manufacturing supply management executives at the present time is energy cost and supply. Other concerns include: price increases and inflation other than energy; employment labor and benefit costs, higher interest rates; and continuity of supply and shortages. The top five responses in order of importance are:

Economic Concerns for Non-Manufacturing Sector

1. Energy Cost and Supply
2. Price Increases and Inflation
3. Labor and Benefits Costs
4. Higher Interest Rates
5. Continuity of Supply and Shortages

OUTLOOK FOR THE NEXT 12 MONTHS

Manufacturing

Respondents are optimistic about the next 12 months, but not as bullish when compared to their response in December 2004. The 57 percent who report a better outlook is less than the 63 percent response received in December 2004. The 35 percent who report that the outlook is the same is up from the 28 percent reported in December 2004, and the 8 percent who indicated the outlook to be worse is lower than the 9 percent reported in December 2004.

Non-Manufacturing

Despite the prediction in an earlier section of this report of a 5.8 percent increase in revenues in 2005, non-manufacturing survey members' organizations have a lower degree of optimism now than they had when they looked ahead in both December 2004 and December 2003. The 43 percent who currently report a better outlook is much lower than the 63 percent who had that outlook in December 2004 and the 64 percent who had a better outlook in December 2003. Forty-seven percent expect no change in the outlook and 10 percent feel the outlook will be worse over the next 12 months.

U.S. DOLLAR - Predicted Strength vs. Major Trading Currencies - in 2006 - Manufacturing Only

Manufacturing

Purchasing and supply executives remain moderately optimistic concerning the prospective strength of the U.S. dollar for 2006. The average diffusion index for this forecast is 59.6 percent, stronger than the December 2004 forecast average of 53.3 percent. Of the seven currencies surveyed in the report, the U.S. dollar is expected to strengthen most against NAFTA trading partners Canada and Mexico.

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. Approximately 80 percent of respondents indicate they are less than three-fourths complete in achieving benefits from applying technology. Of the 80 percent, 46 percent indicate they are less than 50 percent complete. It is obvious from this data that there is still significant improvement to be gained from the application of technology in manufacturing.

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 members was 51.8 percent, indicating that, on average, almost 50 percent of potential improvement is yet to be gained. While 30 percent of respondents have achieved at least 75 percent of their expected potential benefit, the remaining 70 percent still have significant benefits to gain.

SUMMARY

Manufacturing

The manufacturing sector is currently expanding, and the forecast indicates that it will continue to expand in 2006.

• Operating rate is 85.3 percent.
• Production capacity will increase by 5.3 percent in 2006.
• Capital expenditures increased 19 percent in 2005.
• Capital expenditures will increase 9 percent in 2006.
• Prices paid increased 6.4 percent in 2005.
• Overall 2006 prices will increase 3.8 percent.
• Labor and benefit costs will increase 2.7 percent in 2006.
• Manufacturing employment will increase 1.3 percent in 2006.
• The U.S. dollar is expected to strengthen versus major trading partner currencies in 2006.
• Expect strong growth in U.S. exports in 2006.
• Expect strong growth in U.S. imports in 2006.
• Manufacturing revenues (nominal) are up by 7.3 percent in 2005.
• Manufacturing revenues (nominal) will be up by 5.4 percent in 2006.
• Major concerns to manufacturers: energy cost and supply; oil and petroleum-based products; inflation; labor and benefits costs; and continuity of supply and shortages.
• Overall attitude of manufacturing management: optimistic, with 57 percent indicating 2006 will be better than 2005.

Non-Manufacturing

The non-manufacturing sector continues to expand and the forecast indicates an increased rate of expansion in 2006.

• Operating rate is currently 87 percent.
• Production and provision capacity will increase 3.7 percent in 2006.
• Capital expenditures increased 5.3 percent in 2005.
• Capital expenditures will increase 11.1 percent in 2006.
• Prices paid increased 5.3 percent during 2005.
• Prices paid will increase 4 percent during 2006.
• Labor and benefit costs will increase 3.6 percent during 2006.
• Non-manufacturing employment will increase 2.3 percent during 2006.
• Expect strong export growth by non-manufacturing exporters in 2006.
• Expect strong import growth by non-manufacturing importers in 2006.
• Non-manufacturing revenues (nominal) are up 5.8 percent in 2005.
• Non-manufacturing revenues (nominal) will rise 6.6 percent in 2006.
• Major concerns to non-manufacturers: energy cost and supply; price increases and inflation; labor and benefits costs; higher interest rates; and supply continuity and shortages.
• Overall attitude of non-manufacturing supply managers: optimistic, but less so than one year ago.

*Miscellaneous items include: a preponderance of jewelry, toys, sporting goods and musical instruments.

**Other Services include: hotels, rooming houses, camps, and other lodging places; personal services; automotive repair, services, and parking; miscellaneous repair services; educational services; social services; museums, art galleries, and botanical and zoological gardens; membership organizations; engineering, accounting, research, management, and related services; and miscellaneous 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 more than 350 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 from 17 different non-manufacturing industries 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. A weighted composite index similar to the PMI is not available at this time for this report.

The Manufacturing and Non-Manufacturing ISM Report On Business® is published monthly by the Institute for Supply ManagementT. The Institute for Supply ManagementT, 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 2005 data will be released at 10:00 a.m. (ET) on Tuesday, January 3, 2006.

The next Non-Manufacturing ISM Report On Business® featuring the December 2005 data will be released at 10:00 a.m. (ET) on Thursday, January 5, 2006.