ISM 2009: Economic decline forecast to continue, but second half could improve
ISM sees faint light at end of tunnel. Global Insights and Bank of America economists agree.
By Paul Teague -- Purchasing, 5/5/2009 3:28:00 PM
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Two-thirds of the respondents to a recent ISM survey believe there will be a 25.2% reduction in manufacturing revenues this year. After factoring that number against those who see flat or growing revenues, ISM forecasts of an overall 14.7% revenue drop for the nation’s manufacturers this year.
That was the essence of the semiannual economic forecast ISM 2009 attendees heard this morning from Norbert J. Ore, chairman of the ISM manufacturing business survey committee. Ore delivered ISM’s economic report to a packed room of purchasing and supply chain officials, all of whom have been grappling with a weak economy where commodity prices are low but orders are too.
But, Ore said, ISM’s purchasing manager’s index (PMI) appears to have hit bottom. Standing at 40.1 in April, the PMI was almost four percentage points above March and at the highest level of the year so far. Though still far from a reading of 50 required to indicate growth, he said, “the rate of decline is much less than before.”
Also an indication that economic improvement may be on the horizon, he said, was that ISM’s new orders index hit 47.2 in April, it’s highest reading of the year. “If that trend continues, we could see the PMI above 50 before the end of the year,” he said.
Still, other numbers show how poorly the economy has been doing up to now:
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Capacity utilization is only 67%. “It should be above 80% for the economy to be flourishing,” Ore said.
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Capital investment has dropped almost 23%.
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Manufacturing employment as of April was down 2.6%.
Echoing Ore’s description of a weak economy was Bank of America Chief Economist Mickey D. Levy, who said business investment will continue to decline this year.
But, Levy saw hopeful signs in the stabilization of consumer spending and the potential positive impact of federal spending.
“Lower energy prices, lower mortgage rates, and tax refunds have all helped boost consumer spending,” Levy said. “The economy will rebound in the second half.”
Sara L. Johnson, managing director of global macroeconomics for HIS Global Insights, was similarly optimistic about an eventual recovery, but she said a broad economic recovery may not come until next year.
Economic indicators to watch, she said, are stock prices, credit spreads, new home sales, single-family house permits, light-vehicle sales and retail sales.
The good news, though, is that economy’s freefall is over, she said.
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