The 2020 Mid-Year Economic Update_long

Purchasing Execs Expect Growth in 2008

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.
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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.
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Manufacturing Summary
Manufacturing industries expecting the greatest improvement over 2007 & mdash; listed in ...

(58 percent moderate and 5percent substantial) over the next half year.
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Imports
Predicted Change for First Half of 2008
Manufacturing purchasers expect continued growth in imports in the first half of 2008. Of the 85 percent of purchasers who reported they import, 43 percent predict an increase in their imports over the next half-year (38 percent moderate and 5 percent substantial), while 11 percent predict a decrease in imports of materials (10 percent moderate and 1 percent substantial).

Almost half of survey respondents (46 percent) expect no change in imports.

Non-manufacturers have lower expectations for use of imports for the first half of 2008 than they did in December 2006 for the first half of 2007. Of the 41 percent of non-manufacturing organizations who reported they import, 41 percent (36 percent moderate and 5 percent substantial) predict an increase in their imports during the first half of 2008.

Nine percent of the respondents (7 percent moderate and 2 percent substantial) predict a decrease in imports of materials and services.
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Business Revenues
Predicted in 2008
Manufacturing purchasers forecast that 2008 will be better than 2007. The 62 percent of respondents forecasting better business in 2008 than in 2007 estimate an average nominal (before adjusting for inflation) increase of 13.5 percent in their organizations’revenues. This is in contrast to an average nominal decrease of 9.3 percent forecast by the 16 percent who predict worse business in 2008.

Non-manufacturing survey respondents forecast that business revenues for 2008 will be improved over 2007 by an average of 2 percent.
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Profit Margins
Manufacturing survey respondents report that profit margins have declined on average during the second and third quarters of 2007 as 28 percent experienced an increase in profit margins, 35 percent had lower margins, and 37 percent reported no change.

However, expectations are for improvement between now and April of 2008 as 40 percent predict better profit margins, 22 percent predict lower profit margins and 38 percent predict no change.

Non-manufacturing supply management executives responses indicate that 20 percent experienced an increase in profit margins during the second and third quarters of 2007, while 34 percent found smaller profit margins and 46 percent had no change in margins during the same period.

Looking ahead from now through April 2008, 24 percent of supply managers expect improved profit margins, only 20 percent expect lower profit margins, and the remaining 56 percent of respondents anticipate no change in their profit margins.
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Supply Chain Practices in 2008
In response to a question on supply chain optimization, 72 percent of manufacturing purchasing and supply executives plan to take new steps in 2008 to improve their supply chain management practices:

& bull; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; New or improved enterprise technology
& bull; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; Improved inventory management
& bull; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; Improved supplier management practices
& bull; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; Supplier consolidation
& bull; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; &nbsp ; Application of lean manufacturing concepts to supply chain
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Inventory-to-Sales Ratio
Manufacturing purchasers will be decreasing inventory on hand to support their planned level of sales during 2008. In this forecast, 18 percent expect to increase their purchased inventory-to-sales ratio during 2008. This is in contrast to 19 percent who expect the ratio to decrease and 63 percent who predict no change.

Of the 69 percent of non-manufacturing purchasers who answered this question, 14 percent anticipate increasing their purchased inventory-to-sales ratio during 2008. An additional 14 percent expect their ratio to drop and 72 percent see no change. The diffusion index of 50 percent suggests the inventory-to-sales ratio will remain unchanged in 2008.

Find the full report online at the MDM Databank.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.
&nbsp ;
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.
&nbsp ;
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.
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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.&nbsp ; 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.

Respondents in non-manufacturing industries expect that the prices they pay for materials and services will increase by 4 percent during 2008. They also forecast a 3 percent increase in their overall labor and benefit costs for 2008.

Profit margins are reported to have decreased in the second and third quarters of 2007, and respondents expect them to increase slightly between now and April 2008. Survey respondents indicate they have achieved an average of 51.4 percent of potential benefits from application of technology to supply chains and that the increased utilization of enterprise-wide technology and e-business applications is the most frequently cited means of improving supply chains in 2008.

Other improvement approaches include: supplier rationalization/consolidation, improvements in supply management processes, contract management strategies, and increased use of centralized purchasing activities.

Other highlights from the report:
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Production Capacity
Production capacity in manufacturing increased 8.3 percent in 2007 as 43 percent of purchasing and supply executives reported an average capacity increase of 25.1 percent, 16 percent reported decreases averaging 16 percent, and 41 percent reported no change. This compares to a predicted increase of 4 percent for 2007 made in April 2007.

Expectations for 2008 are for an increase of 11.3 percent.

The capacity to produce products or provide services in the non-manufacturing sector increased 1.5 percent during 2007. This is less than the 3 percent increase reported in December 2006 for 2006, and is less than the prediction in April 2007 of a 3.2 percent increase in 2007. For 2008 a larger increase (2.3 percent) is predicted.
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Labor & Benefits Costs
End of 2007 vs. End of 2008
Manufacturing purchasing and supply executives expect higher overall labor and benefit costs for 2008. Seventy-four percent of respondents expect increased labor and benefit costs and expect them to grow by an average of 3.4 percent for all of 2008, while the 2 percent forecasting lower costs see them decreasing by an average of 4.5 percent.

Including the 24 percent of respondents who believe costs will remain the same, the expected overall net rate of increase is 2.5 percent between the end of 2007 and the end of 2008.

Supply executives’expectation for change in labor and benefit costs for non-manufacturing industries in 2008 is an increase of 3 percent. Seventy-two percent of respondents expect such costs to increase by an average of 4.6 percent.

Another 5 percent of respondents expect labor and benefit costs to shrink by an average of 6.6 percent, and 23 percent believe costs will remain stable during 2008.
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Change in Overall Employment
Manufacturing Business Survey Committee members forecast that manufacturing employment will increase 1.6 percent in 2008. Twenty-six percent expect employment to be 11 percent higher while 18 percent predict employment to be lower by 7 percent. The remaining 56 percent of respondents expect their employment levels to be unchanged in 2008.
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Exports
Predicted Change for First Half of 2008

Responses indicate manufacturing purchasers are optimistic about new export orders for the first half of 2008. Of the 79 percent of respondents who export, 53 percent predict an increase (49 percent moderate and 4 percent substantial) over the next half-year. Three percent of respondents predict a decrease in their exports, and 44 percent anticipate no change in exports over the next half-year.

Non-manufacturing supply managers who report that their organizations engage in exporting feel more optimistic than they did one year ago concerning their export business. Of the 19 percent of non-manufacturing business survey respondents who report that they export, 63 percent predict an increase

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