The manufacturing sector is positive about prospects in 2012, according to the December 2011 Semiannual Economic Forecast from the Institute for Supply Management. Revenues are expected to increase in 17 industries, while the non-manufacturing sector appears slightly less positive about the year ahead, with 15 industries expecting higher revenues.
Capital expenditures, a major driver in the U.S. economy, however, will increase only modestly in the manufacturing sector, while investment in the non-manufacturing sector will remain essentially flat.
These projections are part of the forecast issued by the Business Survey Committee of the Institute for Supply Management.
Expectations for 2012 are positive as 69 percent of survey respondents expect revenues to be greater in 2012 than in 2011. The panel of purchasing and supply executives expects a 5.5 percent net increase in overall revenues for 2012, compared to a 7 percent increase reported for 2011 over 2010 revenues.
The following 17 manufacturing industries expecting revenue improvement over 2011 – listed in order – are: Computer & Electronic Products; Machinery; Petroleum & Coal Products; Wood Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Furniture & Related Products; Transportation Equipment; Paper Products; Printing & Related Support Activities; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Primary Metals; Fabricated Metal Products; Chemical Products; and Miscellaneous Manufacturing.
Manufacturing has been resilient throughout the recovery, with growth dating back to August 2009, according to ISM.
In the manufacturing sector, respondents report operating at 79.2 percent of their normal capacity, down from 83.2 percent reported in April 2011. Purchasing and supply executives predict that capital expenditures will increase by 1.9 percent in 2012 over 2011, compared to an 11 percent increase reported for 2011 over 2010.
Survey respondents also forecast that they will reduce inventories by 1.2 percent in an effort to improve their purchased inventory-to-sales ratio in 2012.
Manufacturers have an expectation that employment in the sector will increase by 1.3 percent, while labor and benefit costs are expected to increase an average of 2.4 percent in 2012.
Manufacturing purchasers are predicting growth in exports and imports in 2012. Respondents also expect the U.S. dollar to weaken very slightly on average against the currencies of major trading partners.
The panel also predicts the prices they pay for raw materials will increase 2 percent during the first four months of 2012, and will increase an additional 0.9 percent during the balance of the year, with an overall increase of 2.9 percent for 2012. This compares to a reported 5.7 percent increase in raw materials prices for 2011 compared with 2010.
Survey respondents report that the most challenging problems facing their businesses as they plan for 2012 are: poor sales (43.9 percent); government regulations (22 percent); inflation (17.4 percent); cost of labor (4.5 percent); quality of labor (4.5 percent); taxes (4.5 percent); and interest rates and finance (3 percent).
Fifty-eight percent of non-manufacturing supply management executives expect their 2012 revenues to be greater than in 2011. They currently expect a 3.1 percent net increase in overall revenues for 2012 compared to a 1.5 percent increase reported for 2011 over 2010 revenues.
Fifteen non-manufacturing industries expect revenue improvement in 2012 over 2011 including wholesale trade.
Non-manufacturing supply managers report operating at 85.2 percent of their normal capacity, more than the 83.7 percent reported in April 2011.
They are optimistic about continued growth in the first half of 2012 compared to the second half of 2011, and they have a higher level of optimism about the next 12 months than they had last December for 2011.
Non-manufacturing supply managers forecast their capacity to produce products and provide services will rise by 3.2 percent during 2012, and capital expenditures will increase by 0.1 percent from the 2011 level. Non-manufacturers also predict their employment will increase by 1.1 percent during 2012.
Respondents in non-manufacturing industries expect the prices they pay for materials and services will increase by 2.7 percent during 2012. They also forecast their overall labor and benefit costs will increase 1.8 percent in 2012.
Profit margins are reported to have decreased in the second and third quarters of 2011, and respondents expect them to increase between now and April 2012.
Survey respondents report that the most challenging problems facing their businesses as they plan for 2012 are: poor sales (34.4 percent); government regulations (26.4 percent); inflation (10.4 percent); interest rates and finance (9.6 percent); cost of labor (8.8 percent); taxes (5.6 percent); and quality of labor (4.8 percent).
Planned Supply Chain Improvements in 2012
In its survey for its semiannual forecast, ISM asked an additional question about what supply chain improvements respondents plan to make in 2012.
Seventy-four percent reported they plan to take steps during the coming year to improve their supply chain management practices. The five most frequently cited approaches are listed below:
- Supplier performance management
- Strategic sourcing/supply base rationalization
- Demand planning to reduce supply lead times
- Inventory management and control
- Process and information systems improvements.
Seventy-two percent of non-manufacturing respondents reported they plan to take steps during the coming year to improve their supply chain management practices. The five most frequently cited approaches are listed below:
- Supply management/process improvement
- Leverage new and existing technology
- Contract management
- Professional development
- Strategic sourcing.