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Purchasing Execs Expect Growth in 2005

Economic growth in the U.S. will strengthen in 2005, say the nation's purchasing and supply executives in their 68th Semiannual Economic Forecast. Expectations for 2005 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 2004. The overall prediction is for economic growth to continue at a relatively strong level in 2005. These projections are part of the forecast issued by the Business Survey Committee of the Institute for Supply Management (ISM), Tempe, Ariz.

Expectations for 2005 are high as 75 percent of survey respondents expect revenues to be greater in 2005 than in 2004. The panel of purchasing and supply executives expects a 7.8 percent net increase in overall revenues for 2005, compared to an increase of 8.3 percent for 2004.

Industries expecting the greatest improvement over 2004 are, in order, Miscellaneous; Glass, Stone & Aggregate; Fabricated Metals; Primary Metals; Instruments & Photographic Equipment; Transportation & Equipment; Apparel; and Electronic Components & Equipment. (The Miscellaneous category includes mostly jewelry, toys, sporting goods and musical instruments.)

Manufacturing summary
In the manufacturing sector, respondents report operating at 83 percent of their normal capacity, down from 85.6 percent reported in April 2004. Purchasing and supply executives predict that capital expenditures will increase only 1.6 percent in 2005, compared to the 15.1 percent increase reported for 2004. Survey respondents also forecast that they will increase their purchased inventory-to-sales ratio in 2005. Manufacturers expect employment in the sector to grow by 1.6 percent, while labor and benefits costs are expected to increase an average of 3.4 percent. Manufacturing purchasers are predicting growth in exports and imports, and they expect the U.S. dollar to strengthen somewhat against currencies of major trading partners.

Purchasers predict that the prices they pay will increase 4.3 percent during the first four months of 2005, with an additional 0.1 percent increase over the balance of the year. Reflecting rising concerns over inflation for the first time in a long time, respondents' major concerns are: prices and inflation; energy price increases; weak economy; effects of war and geopolitical concerns; and labor, benefits and healthcare costs, including labor shortages.

A special question was asked to determine respondents' progress in achieving efficiency from the application of technology to supply management. While a few companies rate themselves as being almost finished, 82 percent are less than three-fourths complete in their supply-chain technology initiatives. Members expect to realize supply chain improvements primarily through supplier relationship enhancements; process, tools, systems and software improvements; and the application of electronic commerce.

Non-manufacturing summary
In the non-manufacturing sector, 66 percent of purchasing and supply executives expect their 2005 revenues to be greater than in 2004. They currently expect a 5.9 percent increase in overall revenues, compared to 6.4 percent increase reported for 2004.

Non-manufacturing industries expecting the greatest improvement over 2004 are, in order, Transportation; Business Services; Entertainment; Mining; and Other Services. ("Other Services" includes lodging places such as hotels and rooming houses; automotive repair and parking; educational services; social services; zoos, museums and art galleries; engineering, accounting, research and management services; and other miscellaneous services.)

Non-manufacturing purchasers report operating at 88.2 percent of capacity, somewhat above the 85.4 percent reported in April 2004. They forecast an increase in capacity of 4.4

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