Expectations for 2005 remain high as 72% of manufacturing executives surveyed by the Institute for Supply Management (ISM) in its biennial economic “Report on Business®” forecast revenues to be greater in 2005 than in 2004. However, expectations declined a bit from the last survey as the panel of purchasing and supply executives now expects a 6.8% net increase in overall revenues for 2005 compared to a 7.8% revenue growth forecast in December 2004.

The latest survey, released in early May, found manufacturing executives reporting that their companies are currently operating at 86.8% of normal capacity. This is an increase from December 2004 (83%) and greater than the rate reported in April 2004 (85.6%), though slightly less than the 10-year high reported in May 2000 (87.4%). Recent monthly data from the Manufacturing ISM “Report on Business” indicates the manufacturing sector has grown for 23 consecutive months.

Production capacity is now expected to increase 6% in 2005. This is slightly higher than the expected increase of 5.6% predicted in the December 2004 forecast for 2005.

Supply executives expect capital expenditures to rise 9.8% in 2005. This is a significant increase in expectations when compared to the prediction of 1.6% in the December 2004 forecast for 2005.

After an initial forecast in December 2004 of a 4.3% increase in prices paid during the first four months of 2005, survey respondents report that prices are slightly above expectations. They now report an increase of 4.5% for the period.

The forecast indicates respondents expect price increases to moderate during the period of May 2005 through December 2005 at a rate of 0.7%. They predict a net average increase of 5.2% between December 2004 and December 2005.

Sidebar: Manufacturing Survey Summary

• Operating rate is currently 86.8% of normal capacity.

• Production capacity will increase 6.0% in 2005.

• Capital expenditures will increase 9.8% in 2005.

• Prices paid increased 4.5% through end of April.

• Expect an additional 0.7% increase by end of 2005.

• Manufacturing employment will increase 1.2% during the balance of 2005.

• Manufacturing revenues will increase 6.8% in 2005.

• Overall, manufacturing is benefiting from revenue growth and a high utilization rate, and is willing to invest through capital expansion.