Manufacturing Summary
About 72 percent of survey respondents expect revenues to be greater in 2007 than in 2006. The panel of purchasing and supply executives expects a 6.4 percent net increase in overall revenues for 2007, compared to an increase of 6.2 percent reported for 2006. Manufacturing industries expecting the greatest improvement over 2006 ‘ listed in order ‘ are: Chemical Products; Transportation Equipment; Primary Metals; Food, Beverage & Tobacco Products; Computer & Electronic Products; Miscellaneous Manufacturing; and Electrical Equipment, Appliances & Components.

While 2006 has been a good year overall, it has presented challenges with regard to energy costs and overall inflation in manufacturing costs. Respondents now expect those pressures to subside in 2007 based on their overall price forecast. Manufacturing has lost momentum in the past several months, with a decline in new orders and production, ending 41 consecutive months of growth in November 2006 as measured by and reported in the monthly Manufacturing ISM Report on Business.

 

In manufacturing, respondents report operating at 84.5 percent of their normal capacity, down from 85.6 percent reported in April 2006. Purchasing and supply executives predict that capital expenditures will increase by 8.5 percent in 2007, compared to 7.3 percent reported for 2006. Respondents also forecast that they will reduce inventories in an effort to decrease their purchased inventory-to-sales ratio in 2007.

 

Manufacturers expect employment in the sector to grow by a meager 0.1 percent, while labor and benefits costs are expected to increase an average of 2.5 percent. Manufacturing purchasers predict growth in exports and imports. They also expect the U.S. dollar to strengthen against the currencies of major trading partners.

 

The panel also predicts prices they pay will increase 1.4 percent during the first four months of 2007, and will decrease 0.3 percent for the balance of 2007, with an overall increase of 1.1 percent for 2007. Respondents’ major concerns are: inflation; energy cost and supply; healthcare costs; Chinese currency and imports; and labor and benefits costs.

 

Non-Manufacturing Summary

Seventy-two percent of non-manufacturing supply management executives expect their 2007 revenues to be greater than in 2006. They expect a 6.4 percent net increase in overall revenues for 2007 compared to 7.7 percent reported for 2006. Non-manufacturing industries expecting the greatest improvement over 2006 ‘ listed in order ‘ are: Mining; Professional, Scientific & Technical Services; Wholesale Trade; Transportation & Warehousing; Educational Services; and Information.

 

Non-manufacturing supply managers report operating at 86.3 percent of their normal capacity, slightly below the 88.4 percent reported in April 2006. They are optimistic about continued growth in the first half of 2007 compared to the second half of 2006, and they have a higher level of overall optimism about the next 12 months than they had last December for 2006.

 

They forecast that capacity to produce products and provide services will rise by 6.2 percent during 2007, and capital expenditures will increase by 8.2 percent above the 2006 level. Non-manufacturers also predict that employment will grow by 1.6 percent in 2007. Major economic concerns are: energy, fuel and transportation costs; labor and benefits costs; price increases; interest rates; and the overall economy and inflation. Respondents expect the prices they pay for materials and services will increase by 4 percent during 2007.

 

They also forecast a 3.9 percent increase in their overall labor and benefit costs for 2007. Profit margins slightly increased in the second and third quarters of 2006, and respondents expect them to be slightly better between now and April 2007. Respondents say they have achieved an average of 52.2 percent of potential benefits from application of technology to supply chains and that the increased use of technology and e-business applications is their number one means of improving supply chains in 2007.

 

Other improvement approaches include: supplier consolidation; strategic sourcing; professional development and education; and improvements in supply management processes.

 

Operating Rate

Manufacturing: Companies are currently operating at 84.5 percent of normal capacity. This is a decrease when compared to April 2006 (85.6 percent) and less than the rate reported in December 2005 (85.3 percent). Recent monthly data from the Manufacturing ISM Report On Business indicates the manufacturing sector concluded 41 consecutive months of growth in November 2006. The following nine industries are operating at or above the average capacity of 84.5 percent: Paper Products; Primary Metals; Textile Mills; Electrical Equipment, Appliances & Components; Furniture & Related Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Transportation Equipment; and Computer & Electronic Products.

 

Non-Manufacturing: Supply executives report that their organizations are currently operating at 86.3 percent of normal capacity. This is slightly lower than the 88.4 percent reported in April 2006, and slightly lower than the 87 percent reported in December 2005. Considering production capacity increases reported in the following section of this forecast, this indicates that non-manufacturing industries are continuing to add capacity, but also find it necessary to maintain their utilization of capacity at a relatively high level.

 

Production Capacity

Manufacturing: Production capacity in manufacturing increased 2.7 percent in 2006 as 44 percent of purchasing and supply executives reported an average capacity increase of 9.8 percent, 13 percent reported decreases averaging 11.8 percent, and 43 percent reported no change. This compares to a predicted increase of 5.6 percent for 2006 made in April 2006. Expectations for 2007 are for an increase of 5.4 percent.

 

The following eight industries report at or above the average 2.7 percent increase in 2006: Primary Metals; Textile Mills; Furniture & Related Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Machinery; and Transportation Equipment.

 

Predicted Capital Expenditures

Manufacturing: Purchasing and supply executives expect capital expenditures to rise 8.5 percent in 2007. The 44 percent of respondents who predict increased capital expenditures in 2007 indicate an average increase of 27.8 percent, while the 17 percent who said their capital spending would be reduced predict an average decrease of 22.5 percent; 39 percent said they expect to spend the same in 2007 as in 2006. Industries predicting the largest increases in capital expenditures for 2007 ‘ in order of percentage increase ‘ are: Primary Metals; Fabricated Metal Products; Machinery; Chemical Products; and Food, Beverage & Tobacco Products.

 

Non-Manufacturing: Purchasing and supply executives are expecting a slightly lower increase (8.2 percent) in capital expenditures than they are reporting for 2006 (9.9 percent). The 50 percent of respondents expecting to spend more predict an average increase of 24.5 percent. An additional 16 percent anticipate a decrease averaging 27.1 percent. Thirty-four percent expect to spend the same on capital expenditures in 2007 as in 2006. Industries expecting above average increases in capital expenditures in 2007 are: Utilities and Educational Services.

 

Prices: Predicted Changes Between End of 2006 and End of 2007

Manufacturing: The forecast indicates respondents predict a net average increase of 1.1 percent between December 2006 and December 2007, indicating they expect price increases to moderate during the period of April 2007 through December 2007 at a rate of -0.3 percent. Fifty-five percent of respondents expect an average price increase of 5.2 percent, while 26 percent expect an average decline of 6.9 percent. The remaining 19 percent expect no change in their average prices paid for the year.

 

Non-Manufacturing: For all of 2007, non-manufacturing supply management executives expect their prices to rise an average of 4 percent. Seventy-five percent of respondents expect increases averaging 6.1 percent, 9 percent anticipate prices to drop an average of 5.9 percent, and 16 percent foresee no change in prices during the next year.

 

Supply Chain Practices in 2007

In response to a special question regarding supply chain optimization, 82 percent of purchasing and supply executives in manufacturing plan to take new steps in 2007 to improve their supply chain management practices. New or improved enterprise technology is at the top of the list for 2007.

 

The five most popular approaches are listed below:

1. 
   New or improved enterprise technology