PMs see few clouds on the economic horizon
By Staff -- Purchasing, 1/15/1998
Purchasing executives reveal an optimistic streak, according to NAPM's semi-annual economic forecast. In the most recent survey, purchasing pros acknowledge both the benefits and problems of a continuing strong economy. The results paint a fairly rosy outlook for the manufacturing sector in 1998--* Capacity utilization: Since operating rates remain high, it's not surprising that 60% of survey respondents predict that production capacity will rise. Average firm is operating at 86.4% capacity, which remains unchanged from May 1997. Production capacity is expected to increase an average of more than 5% this year over a 10% hike in 1997.
* Capital expenditures: Buyers expect this slice of budget spending to rise an average of nearly 15% in 1998. That's a significant jump over the 9.5% increase in capital expenditures reported in 1997. The expectation for capital expenditures also is noticeably more optimistic than in December 1996 when purchasing pros predicted a 1.6% decline in capital expenditures. Industries that foresee the highest increases in investment spending are paper, textiles, rubber and plastic products, petroleum, and chemicals.
* Revenue: Raised expectations for capital expenditures may correspond to higher-than-expected revenue in 1997. Last year, buyers reported 7.2% growth, which topped hopes in May for a 7.0% advance. Purchasing executives say revenue in 1998 should climb 7.8% above last year's zenith.
* Prices: Despite hopes for higher revenue, purchasing pros acknowledge that they expect to pay more for supplies through May of this year. The average increase predicted for that period is just under 3%. Net expectation for 1998 price hikes is 0.6%.
* Purchased inventory-to-sales ratio: The diffusion index from the December 1997 survey is 41%, suggesting that buyers continue to reduce their ratio of inventory to sales.
* Manufacturing employment: Forty percent of purchasing executives responding predict that a greater number of workers will be employed this year. This represents almost a 15% jump over the December 1996 forecast. Five percent fewer respondents expect employment to decrease in 1998 than predicted a decrease for 1997.
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