Economic growth in the United States will continue in 2006 and manufacturing expectations remain at a relatively high level, say the nation's purchasing and supply management executives in their 70th Semiannual Economic Forecast. The forecast was issued in mid-December by the Business Survey Committee of the Institute for Supply Management (ISM).

Expectations for 2006 are high as 75 percent of survey respondents expect revenues to be greater in 2006 than in 2005. The panel of purchasing and supply executives expects a 5.4 percent net increase in overall revenues for 2006, compared to an increase of 7.3 percent increase reported for 2005. “While 2005 was a particularly strong year overall, it presented challenges with regard to inflationary pressures on manufacturing costs,” said survey Chairman Norbert Ore. “Respondents now expect those pressures to subside somewhat in 2006 based on their overall price forecast. Manufacturing has gained momentum in the past several months with significant strength in new orders and production, and is in its 30th consecutive month of growth as reported in the monthly Manufacturing ISM Report On Business®.”

Respondents are optimistic about the next 12 months, but not as bullish when compared to their response in December 2004. The 57 percent who report a better outlook is less than the 63 percent response received in December 2004. The 35 percent who report that the outlook is the same is up from the 28 percent reported in December 2004, and the 8 percent who indicated the outlook to be worse is lower than the 9 percent reported in December 2004.

In the manufacturing sector, respondents report operating at 85.3 percent of their normal capacity, down from 86.8 percent reported in May 2005. Purchasing and supply executives predict that capital expenditures will increase by 9 percent in 2006, compared to a 19 percent increase reported for 2005. Manufacturing purchasers are predicting growth in exports and imports. They also expect the U.S. dollar to strengthen somewhat against currencies of major trading partners.

The panel also predicts the prices they pay will increase 3.5 percent during the first four months of 2006, and will increase an additional 0.3 percent for the balance of 2006. Respondents' major concerns are: energy cost and supply; oil and petroleum-based products; inflation; labor and benefits costs; and continuity of supply and shortages.

In response to a special question regarding supply chain optimization, 74 percent of purchasing and supply executives plan to take new steps in 2006 to improve their supply chain management practices. New or improved enterprise technology is at the top of the list for 2006. Improved forecasting and planning is second on the list. Supplier consolidation; improved inventory management; and application of lean manufacturing concepts to supply chain are the other major issues of concern to supply managers. The five most popular approaches are listed below:

  • New or improved enterprise technology.

  • Improved forecasting and planning.

  • Supplier consolidation.

  • Improved inventory management.

  • Application of lean manufacturing concepts to supply chain.

Summary Of Manufacturing Outlook

The manufacturing sector is currently expanding, and the forecast indicates that it will continue to expand in 2006.

  • Operating rate is 85.3 percent.

  • Production capacity will increase by 5.3 percent in 2006.

  • Capital expenditures increased 19 percent in 2005.

  • Capital expenditures will increase 9 percent in 2006.

  • Prices paid increased 6.4 percent in 2005.

  • Overall 2006 prices will increase 3.8 percent.

  • Labor and benefit costs will increase 2.7 percent in 2006.

  • Manufacturing employment will increase 1.3 percent in 2006.

  • The U.S. dollar is expected to strengthen versus major trading partner currencies in 2006.

  • Expect strong growth in U.S. exports in 2006.

  • Expect strong growth in U.S. imports in 2006.

  • Manufacturing revenues (nominal) are up by 7.3 percent in 2005.

  • Manufacturing revenues (nominal) will be up by 5.4 percent in 2006.

Major concerns to manufacturers: energy cost and supply; oil and petroleum-based products; inflation; labor and benefits costs; and continuity of supply and shortages.

Overall attitude of manufacturing management: optimistic, with 57 percent indicating 2006 will be better than 2005.