Semiannual Forecast Report December 11, 2012 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 2004 – November 2012

4 NMI November 2012

5 Non-Manufacturing Business Activity 2004 – November 2012

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 2012 vs Production Capacity Dec 2012 MfgNon-Mfg + 1.3%+ 3.2%

8 Production Capacity: Manufacturing Principal Means of Achieving Increases in 2012: Additional personnel (permanent, temporary or contract) More hours worked with existing personnel Additional plant and/or equipment Replaced equipment with technically advanced equipment

9 Additional personnel (permanent, temporary or contract) More hours worked with existing personnel Additional plant and/or equipment Replaced equipment with technically advanced equipment Production Capacity: Non-Manufacturing Principal Means of Achieving Increases in 2012:

10 Production Capacity Change Predicted For 2013 Predicted Production Capacity MfgNon-Mfg + 6.8%+ 3.4%

11 Capital Expenditures MfgNon-Mfg + 3.7%+ 9.4% MfgNon-Mfg + 7.6%+ 7.0% Actual 2012 vs Predicted 2013 vs. 2012

12 Price ChangesMfgNon-Mfg Dec % + 2.7% Reported Purchase Price Changes End 2012 vs. End 2011

13 MfgNon-Mfg April 2013 vs. End %+ 2.3% End 2013 vs. End %+ 2.7% December 2012 Predicted Purchase Price Changes

14 Predicted Labor and Benefit Costs Labor & Benefit CostsMfgNon-Mfg Dec % + 1.9% 2013 vs. 2012

15 Predicted Employment Change Overall EmploymentMfgNon-Mfg Dec %+ 1.3% End 2013 vs. End 2012

16 Note: 81.4% of Manufacturing respondents export Exports: Predicted Change First Half 2013 Manufacturing

17 Note: 22% of Non-Manufacturing respondents export Non-Manufacturing Exports: Predicted Change First Half 2013

18 Note: 85% of Manufacturing respondents import Manufacturing Imports: Predicted Change First Half 2013

19 Note: 45.4% of Non-Manufacturing respondents import Non-Manufacturing Imports: Predicted Change First Half 2013

20 Business Revenues (nominal) MfgNon-Mfg Reported 2012 vs %+ 3.4% Predicted 2013 vs %+ 4.3% December 2012

21 Industries Predicting Growth in Revenues 2013 vs — Manufacturing n Primary Metals n Petroleum & Coal Products n Computer & Electronic Products n Wood Products n Furniture & Related Products n Printing & Related Support Activities n Food, Beverage & Tobacco Products n Paper Products n Chemical Products n Plastics & Rubber Products n Apparel, Leather & Allied Products n Miscellaneous Manufacturing n Transportation Equipment n Machinery n Nonmetallic Mineral Products n Electrical Equipment, Appliances & Components n Fabricated Metal Products

22 Industries Predicting Growth in Revenues 2013 vs — Non-Manufacturing n Construction n Professional, Scientific & Technical Services n Other Services n Management of Companies & Support Services n Real Estate, Rental & Leasing n Wholesale Trade n Retail Trade n Transportation & Warehousing n Accommodation & Food Services n Arts, Entertainment & Recreation n Finance & Insurance n Information n Public Administration Health Care & Social Assistance Health Care & Social Assistance

23 MfgNon-Mfg Better40%43% Same38%41% Worse22%16% Diffusion Index59%63.5% First Half 2013 vs. Last Half 2012 Business in 2013

24 Second Half 2013 vs. First Half 2013 MfgNon-Mfg Better46%42% Same44%48% Worse10%10% Diffusion Index68%66% Business in 2013

25 Most Important Issues Facing Business Manufacturing Poor sales (37.8%) Government regulations (30.5%) Inflation (9.8%) Taxes (9.1%) Quality of labor (4.9%) Interest rates and finance (4.3%) Cost of labor (3.7%)

26 Most Important Issues Facing Business Non-Manufacturing Government regulations (35.4%) Poor sales (22.2%) Cost of labor (10.4%) Inflation (9%) Interest rates and finance (9%) Taxes (7.6%) Quality of labor (6.3%)

27 Manufacturing Most Cited Approaches Strategic sourcing/supply base rationalization Inventory management and control Process and information systems improvements Supplier performance management Demand planning to reduce supply lead times Supply Chain Improvements 2013

28 Non-Manufacturing Most Cited Approaches n Strategic cost management n Process improvement n Strategic sourcing n Supplier relationship management n Professional development Supply Chain Improvements 2013

29 Change for 2013 vs MfgNon-Mfg Expect to Increase19%12% Expect No Change60%79% Expect to Decrease21% 9% Diffusion Index49%51.5% Predicted Inventory-to-Sales Ratio

30 Business Outlook Next 12 Months MfgNon-Mfg Better42%47% Same38%31% Worse20%22% Diffusion Index61%62.5%

31 Strength of the U.S. Dollar for 2013 Manufacturing Dec % Dec % Average Diffusion Index for U.S. Dollar vs. 7 Major Currencies

32 Reported Profit Margins Apr 2012 – Nov 2012 MfgNon-Mfg Better34%21% Same40%44% Worse26%35% Diffusion Index54%43%

33 Predicted Profit Margins Nov 2012 – Apr 2013 MfgNon-Mfg Better28%28% Same50%53% Worse22%19% Diffusion Index53%54.5%

34 Summary Manufacturing n Operating rate is currently at 77.5%. n Production capacity increased by 1.3% in n Production capacity is expected to increase by 6.8% in n Capital expenditures increased 3.7% in n Capital expenditures are expected to increase 7.6% in 2013.

35 n Prices paid increased 0.8% in n Overall 2013 prices paid are expected to increase 2.8%. n Labor and benefit costs are expected to increase 1.7% in n Manufacturing employment is expected to increase 0.8% 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 4% in n Manufacturing revenues (nominal) are expected to increase 4.6% in n The U.S. dollar is expected to strengthen on average versus major trading partner currencies in n Overall attitude of manufacturing supply managers: optimistic, with 80% of respondents predicting 2013 will be the same as or better than Summary Manufacturing continued

37 Summary Non-Manufacturing n Operating rate is currently at 85.4%. n Production capacity increased 3.2% in n Production and provision capacity is expected to increase 3.4% in n Capital expenditures increased 9.4% in n Capital expenditures are expected to increase 7% in n Prices paid increased 2.7% in 2012.

38 n Prices paid are expected to increase 2.7% in n Labor and benefit costs are expected to increase 1.9% in n Non-manufacturing employment is expected to increase 1.3% 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 3.4% in n Non-manufacturing revenues (nominal) are expected to rise 4.3% in n Overall attitude of non-manufacturing supply managers: mostly positive outlook, with 78% of respondents predicting 2013 will be the same as or better than 2012.

40 Questions