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ISM: Economic Growth To Continue Throughout 2011
May 26, 2011
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U.S. purchasing and supply executives expect economic growth to continue in the United States for the rest of the year, according to the 2011 Semiannual Economic Forecast from the Institute for Supply Management.

The report from ISM's Business Survey Committee shows that expectations for 2011 have improved in both manufacturing and non-manufacturing sectors.

Manufacturing Forecast

Manufacturing survey responses yield "significant expectations" for growth in 2011, ISM reported, with survey results showing manufacturers' net revenues are expected to increase 7.5% in 2011 compared to 2010. This is an improvement in expectations from December 2010, when the panel of respondents were predicting a 5.6% increase in 2011 revenues compared to 2010.

ISM also reported that, for full-year 2011:
• operating capacity will improve to 83.2%
• capital expenditures are expected to increase of 17.9%
• prices paid are expected to increase 7.4%

Given these factors, manufacturers may be challenged to increase revenue and keep costs in-line for the rest of the year.

"Much of manufacturing has emerged from the economic downturn and is experiencing significant growth. Capacity utilization is back to typical levels and manufacturers are significantly investing in their businesses. The positive forecast for revenue growth and improved employment will drive the continuation of the recovery in the sector," said Norbert J. Ore, CPSM, C.P.M., chair of the ISM Manufacturing Business Survey Committee.

The Electrical Equipment, Appliances & Components industry segment is one of the 18 manufacturing segments that ISM tracks. 17 of those 18 industry segments – including Appliances - reported expectations of growth in revenue during the year. These 17 industries in order of their revenue growth expectations are:

• Plastics & Rubber Products
• Fabricated Metal Products
• Primary Metals
• Apparel, Leather & Allied Products
• Machinery
• Computer & Electronic Products
• Transportation Equipment
• Food, Beverage & Tobacco Products
• Nonmetallic Mineral Products
• Printing & Related Support Activities
• Wood Products
• Chemical Products
• Miscellaneous Manufacturing
• Textile Mills
• Electrical Equipment, Appliances & Components
• Furniture & Related Products
• Paper Products

The one industry segment that did not report revenue growth expectation was Petroleum & Coal Products.

Operating Rate: A 21-month growth trend in operating rates started in August 2009, according to ISM. Manufacturing purchasing and supply managers report their companies are currently operating at 83.2% of normal capacity, up from 80.2% reported in December 2010 and from 72.8% reported in April 2010. This metric is at its highest since December 2006, when operating capacity was at 84.5%.

However, the Electrical Equipment, Appliances & Components segment was not one of the 10 manufacturing segments reporting operating capacity was at or above the average capacity of 83.2%.

Production Capacity: Manufacturing production capacity is expected to increase 8.1% in 2011. This is a larger 2011 increase than the 5.2% expected in December 2010 and is larger than 2010's increase of 7.5%. The Appliance segment is among the 15 industries expecting production capacity increases for 2011.

Predicted Capital Expenditures Manufacturing respondents expect a 17.9% increase in capital expenditures in 2011 compared to 2010. In the December 2010 report, the 2011 increase was expected to be just 14.5%. The Appliance segment was among the industry segments expecting increases in capital expenditures in 2011 compared to 2010.

Price Changes January through April 2011: In December 2010, respondents predicted an increase of 2.7% in prices paid during the first four months of 2011. They are now reporting prices increased 6.1% in the first four months.

• 85% of respondents say prices are higher now than at the end of 2010. Of these, the average increase is 7.4%.
• 5% report lower prices since the end of 2010. Of those, the average decrease is 3.8%.
• 10% indicate no change in process since the end of 2010.

The Appliance segment, and all of the 17 other manufacturing industry segments, reported increases in prices paid in the first four months of 2011.

Price Changes Predicted for All of 2011: Manufacturing companies

• 83% of respondents expect prices to increase compared to the end of 2010. The average expected price increase is 9.1%.
• 5% anticipate decreases. The average decrease is 4.1%.
• 12% expect no change in prices.

As a whole, respondents see average prices to go up 7.4% for all of 2011, that means prices will rise just 1.3% more in the remaining months of 2011.

The Appliance segment, and all of the 17 other manufacturing industry segments, expect price increases for all of 2011.

Employment: Overall, survey respondents forecast manufacturing employment to be up 2.9% during the remainder of 2011. The Appliance segment was one of 14 industries reporting expectations of growth in employment in 2011.

Business Revenues Comparison: Overall expectations are for revenues in 2011 to increase 7.5% over 2010. This is higher than the December 2010 forecast, when respondents expected a 2010 overall revenue increase of 5.6%. However, it is lower than the 7.9% overall increase in revenues reported for 2010.

Appliance was one of the 17 industries that expects revenue growth in 2011.

Special Questions – Passing on Price Increases:
ISM asked its panel a special question related to the Japanese earthquake and tsunami in March 2011. The survey asked respondents what percentage of input price increases they expect to be able to pass on to customers as higher end product prices. The average was 34%. The Appliance segment was one of the 11 industry segments that expects to be able to pass along 20% to 50% of price increases.

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