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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 high 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 Management, Tempe, AZ.
Expectations for 2006 are high as 75 percent of survey respondents expect revenues to be greater in 2006 than in 2005. Purchasing and supply executives expect a 5.4 percent net increase in overall revenues for 2006, compared with an increase of 7.3 percent reported in 2005. Manufacturing industries expecting the greatest improvement are: Electronic Components & Equipment; Glass, Stone & Aggregate; Chemicals; Apparel; Fabricated Metals; Transportation & Equipment; Textiles; Rubber & Plastic Products; and Primary Metals.
Respondents report operating at 85.3 percent of their normal capacity, down from 86.8 percent in May 2005. Purchasing and supply executives predict that capital expenditures will increase by 9 percent in 2006, compared to a 19 percent increase in 2005. Respondents also forecast that they will decrease their purchased inventory-to-sales ratio in 2006. Manufacturers expect that employment in the sector will grow by 1.3 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.
Respondents also expect 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.
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. They forecast that their capacity to produce products and provide services will rise by 3.7 percent during 2006, and that capital expenditure 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. 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.
Predicted capital expenditures
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