Semiannual Forecast Report December 6, 2011 ISM Business Survey Committees

2 Speakers Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee Anthony S. Nieves, C.P.M., CFPM, chair of the ISM Non-Manufacturing Business Survey Committee

3 PMI November November 2011

4 NMI November 2011

5 Non-Manufacturing Business Activity 2002 – November 2011

6 Current Operating Rate Percent of Normal Capacity n December % n April % n December % n December % n April % n December % Manufacturing Non-Manufacturing

7 Production Capacity Change Reported 2011 vs Production Capacity Dec 2011 MfgNon-Mfg + 4.6%+ 1.1%

8 Production Capacity: Manufacturing Principal Means of Achieving Increases in 2011: Additional plant and/or equipment More hours worked with existing personnel Additional personnel (permanent, temporary or contract) Fewer shutdowns of operations or facilities

9 More hours worked with existing personnel Additional personnel (permanent, temporary or contract) Additional plant and/or equipment Replaced equipment with technically advanced equipment Production Capacity: Non-Manufacturing Principal Means of Achieving Increases in 2011:

10 Production Capacity Change Predicted For 2012 Predicted Production Capacity MfgNon-Mfg + 5.6%+ 3.2%

11 Capital Expenditures MfgNon-Mfg %+ 4.0% MfgNon-Mfg + 1.9%+ 0.1% Actual 2011 vs Predicted 2012 vs. 2011

12 Price ChangesMfgNon-Mfg Dec % + 2.8% Reported Purchase Price Changes End 2011 vs. End 2010

13 MfgNon-Mfg April 2012 vs. End %+ 2.1% End 2012 vs. End %+ 2.7% December 2011 Predicted Purchase Price Changes

14 Predicted Labor and Benefit Costs Labor & Benefit CostsMfgNon-Mfg Dec % + 1.8% 2012 vs. 2011

15 Predicted Employment Change Overall EmploymentMfgNon-Mfg Dec %+ 1.1% End 2012 vs. End 2011

16 76 Note: 80.6% of Manufacturing respondents export 65.5 Exports: Predicted Change First Half 2012 Manufacturing

17 Note: 29.1% of Non-Manufacturing respondents export Non-Manufacturing Exports: Predicted Change First Half

18 Note: 86.6% of Manufacturing respondents import Manufacturing Imports: Predicted Change First Half

19 Note: 49.6% of Non-Manufacturing respondents import Non-Manufacturing Imports: Predicted Change First Half

20 Business Revenues (nominal) MfgNon-Mfg Reported 2011 vs %+ 1.5% Predicted 2012 vs %+ 3.1% December 2011

21 Industries Predicting Growth in Revenues 2012 vs — Manufacturing n Computer & Electronic Products n Machinery n Petroleum & Coal Products n Wood Products n Nonmetallic Mineral Products n Electrical Equipment, Appliances & Components n Apparel, Leather & Allied Products n Furniture & Related Products n Transportation Equipment n Paper Products n Printing & Related Support Activities n Plastics & Rubber Products n Food, Beverage & Tobacco Products n Primary Metals n Fabricated Metal Products n Chemical Products n Miscellaneous Manufacturing

22 Industries Predicting Growth in Revenues 2012 vs — Non-Manufacturing n Professional, Scientific & Technical Services n Mining n Construction n Other Services n Wholesale Trade n Agriculture, Forestry, Fishing & Hunting n Information n Retail Trade n Transportation & Warehousing n Arts, Entertainment & Recreation n Accommodation & Food Services n Real Estate, Rental & Leasing n Finance & Insurance n Utilities n Public Administration

23 MfgNon-Mfg Better41%35% Same43%50% Worse16%15% Diffusion Index62.5%60% First Half 2012 vs. Last Half 2011 Business in 2012

24 Second Half 2012 vs. First Half 2012 MfgNon-Mfg Better39%37% Same53%53% Worse 8%10% Diffusion Index65.5%63.5% Business in 2012

25 Most Important Issues Facing Business Manufacturing Poor sales (43.9%) Government regulations (22%) Inflation (17.4%) Cost of labor (4.5%) Quality of labor (4.5%) Taxes (4.5%) Interest rates and finance (3%)

26 Most Important Issues Facing Business Non-Manufacturing Poor sales (34.4%) Government regulations (26.4%) Inflation (10.4%) Interest rates and finance (9.6%) Cost of labor (8.8%) Taxes (5.6%) Quality of labor (4.8%)

27 Manufacturing Most Cited Approaches Supplier performance management Strategic sourcing/supply base rationalization Demand planning to reduce supply lead times Inventory management and control Process and information systems improvements Supply Chain Improvements 2012

28 Non-Manufacturing Most Cited Approaches n Supply management process improvement n Leverage new and existing technology n Contract management n Professional development n Strategic sourcing Supply Chain Improvements 2012

29 Change for 2012 vs MfgNon-Mfg Expect to Increase17%13% Expect No Change54%68% Expect to Decrease29%19% Diffusion Index44%47% Predicted Inventory-to-Sales Ratio

30 Business Outlook Next 12 Months MfgNon-Mfg Better46%44% Same38%38% Worse16%18% Diffusion Index65%63%

31 Strength of the U.S. Dollar for 2012 Manufacturing Dec % Dec % Average Diffusion Index for U.S. Dollar vs. 7 Major Currencies

32 Reported Profit Margins Apr 2011 – Nov 2011 MfgNon-Mfg Better31%27% Same32%37% Worse37%36% Diffusion Index47%45.5%

33 Predicted Profit Margins Nov 2011 – Apr 2012 MfgNon-Mfg Better40%32% Same41%50% Worse19%18% Diffusion Index60.5%57%

34 Summary Manufacturing n Operating rate is currently at 79.2%. n Production capacity increased by 4.6% in n Production capacity is expected to increase by 5.6% in n Capital expenditures increased 11% in n Capital expenditures are expected to increase 1.9% in 2012.

35 n Prices paid increased 5.7% in n Overall 2012 prices paid are expected to increase 2.9%. n Labor and benefit costs are expected to increase 2.4% in n Manufacturing employment is expected to increase 1.3% in n Expect growth in U.S. exports in n Expect growth in U.S. imports in Summary Manufacturing continued

36 n Manufacturing revenues (nominal) are up 7% in n Manufacturing revenues (nominal) are expected to increase 5.5% in n The U.S. dollar is expected to weaken slightly on average versus major trading partner currencies in n Overall attitude of manufacturing supply managers: optimistic, with 84% of respondents predicting 2012 will be the same as or better than Summary Manufacturing continued

37 Summary Non-Manufacturing n Operating rate is currently at 85.2%. n Production capacity increased 1.1% in n Production and provision capacity is expected to increase 3.2% in n Capital expenditures increased 4% in n Capital expenditures are expected to increase 0.1% in n Prices paid increased 2.8% in 2011.

38 n Prices paid are expected to increase 2.7% in n Labor and benefit costs are expected to increase 1.8% in n Non-manufacturing employment is expected to increase 1.1% in n Expect export levels to increase in n Expect import growth in Summary Non-Manufacturing continued

39 Summary Non-Manufacturing continued n Non-manufacturing revenues (nominal) are up 1.5% in n Non-manufacturing revenues (nominal) are expected to rise 3.1% in n Overall attitude of non-manufacturing supply managers: mostly positive outlook, with 82 percent of respondents predicting 2012 will be the same as or better than 2011.

40 Questions