ISM Semiannual Report: Cost pressures may subside in the next year
December 25, 2007
The past year, 2007, has presented challenges to manufacturers in the form of energy costs and overall inflation in manufacturing inputs. Manufacturer respondents in the Institute for Supply Management December 2007 Semiannual Economic Forecast expect cost pressures to subside in 2008; 62 percent of manufacturing purchasing and supply executives expect growth in revenues over 2007.   ; The panel of purchasing and supply executives expect a 6.8 percent net increase in overall revenues. These projections are part of the forecast issued by the Business Survey Committee of the Institute for Supply Management.   ; Manufacturing Summary Manufacturing industries expecting the greatest improvement over 2007 & mdash; listed in order & mdash; are: Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Miscellaneous Manufacturing; Fabricated Metal Products; Food, Beverage & Tobacco Products; Textile Mills; Paper Products; and Printing & Related Support Activities.
In the manufacturing sector, respondents report operating at 82.9 percent of their normal capacity, up from 82.8 percent reported in April 2007. Purchasing and supply executives predict that capital expenditures will increase by a meager 0.7 percent in 2008, compared with an 18.2 percent increase reported for 2007.
Survey respondents also forecast that they will reduce inventories in an effort to decrease their purchased inventory-to-sales ratio in 2008. Manufacturers have an expectation that employment in the sector will grow by 1.6 percent, while labor and benefits costs are expected to increase an average of 2.5 percent.
Manufacturing purchasers are predicting strong growth in both exports and imports. They also expect the U.S. dollar to weaken on average against the currencies of major trading partners.
The panel also predicts the prices they pay will increase 3.3 percent during the first four months of 2008, and will increase one percent during the balance of 2008, with an overall increase of 4.3 percent for 2008. Respondents'major concerns are: energy cost and supply; weak dollar; inflation; housing; and commodity prices.
A special question was asked to determine the progress of organizations in achieving efficiencies from the application of technology to supply management. Respondents believe they are only 51 percent complete on average in achieving benefits from technology in their supply chain, indicating there is still significant improvement to be gained from the application of technology in manufacturing.
Survey respondents expect to realize supply chain improvements through new or improved enterprise technology; improved inventory management; improved supplier management practices; supplier consolidation; and application of lean manufacturing concepts to supply chain.   ; Non-Manufacturing Summary Fifty-four percent of non-manufacturing supply management executives expect their 2008 revenues to be greater than in 2007. They expect a 2 percent net increase in overall revenues for 2008 compared to a 1.3 percent increase reported for 2007.  ; Wholesale trade is among the non-manufacturing industries expecting the greatest improvement over 2007.
Non-manufacturing executives forecast that their capacity to produce products and provide services will rise by 2.3 percent during 2008, and capital expenditures will decrease by 6.3 percent from the 2007 level. Non-manufacturers also predict that their employment will grow by 0.5 percent during 2008.
Their major economic concerns are: energy, fuel and transportation costs; inflation; interest rates; exchange rates and devaluation of the dollar; health care, labor and benefits costs; housing and credit markets; and price increases.