Economic Forecast: Manufacturing Growth Slow, But Sustainable

According to the Institute for Supply Chain Management’s Semiannual Economic Forecast, the manufacturing sector is growing at a sustainable rate; operating rate reaches 82.8 percent, while production capacity, capital expenditures and employment are all expected to rise throughout the remainder of 2007.

Amy Radishofski, Staff Reporter

May 8, 2007

TEMPE, Ariz. - The Institute for Supply Chain Management (ISM) on Tuesday released its spring 2007 Semiannual Economic Forecast, which indicated that the U.S. manufacturing outlook is “encouraging” for the rest of 2007.

As a whole, the manufacturing sector is growing at a slower, but sustainable rate.

“The manufacturing economy peaked last year and maintained a fairly solid rate of growth since then,” commented Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee. He added that revenues are expected to increase 5.6 percent, and that “it is not the strongest forecast we’ve seen, but it still shows confidence.”

The industries predicted to have the greatest increases in revenue include: Primary Metals; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Chemical Products; Fabricated Metal Products; Plastics & Rubber Products; and Food, Beverage and Tobacco Products.

“Respondents are optimistic about their organizations’ prospects for 2007,” Ore said. “While 2007 appears to be lagging behind the last three years in terms of manufacturing growth, the forecast indicates manufacturers are investing and foresee revenue improvement in their future.”

Despite a current operating rate of 82.8 percent, its lowest level since December 2003, capital expenditures are forecast to rise 5.8 percent in 2007.

Production capacity is expected to increase 4 percent in 2007, up from the 2.7 percent reported in December 2006.

Ore noted that although profits are good and prices are up, the planned investment is not particularly strong, but that could be expected due to the lower operating rate.

Prices paid rose 2.8 percent through the end of April 2007. Including a predicted additional increase of 0.7, prices are expected to rise a total of 3.5 percent for the year.

When it comes to employment, Ore added that manufacturers “don’t feel the need to cut costs because of pricing pressure,” and that employment will be stable.

Throughout the rest of 2007, employment is forecast to increase 0.5 percent. Industries expecting above-average employment growth include: Fabricated Metal Products; Transportation Equipment; Miscellaneous Manufacturing; Computer & Electronic Products; Chemical Products; and Food, Beverage & Tobacco Products.

For more information, click here.