The Semiannual Economic Forecast

April 30, 2013ISM Business Survey Committees

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Agenda Bradley J. Holcomb, CPSM, CPSD

Manufacturing Semiannual Forecast

Anthony S. Nieves, C.P.M., CFPM Non-Manufacturing Semiannual Forecast

Bernard Baumohl, The Economic Outlook Group

Q & A

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Dr. John H. Hoagland (December 22, 1919 – March 6, 2013)

BA from Oberlin College, MBA from Harvard University, PhD from the Ohio State University

Purchasing Professor at Michigan State University’s Broad College of Business from 1952 through his retirement in 1990

Co-founder of the Purchasing and Supply Management Executive Seminar at MSU

Awarded an NAPM Professorship ISM J. Shipman Gold Medal Award recipient

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Dr. John H. Hoagland (December 22, 1919 – March 6, 2013)

Paul Harris Fellow from Rotary International Robert Angell Award honoree from NAPM of Central

Michigan Honorary Alumni Award winner from MSU Alumni

Association Hoagland-Metzler Endowed Chair in Purchasing and

Supply Management at MSU ISM John H. Hoagland Award for Distinguished Service

by Academics & Practitioners created to honor Dr. Hoagland

5

Dr. John H. Hoagland (December 22, 1919 – March 6, 2013)

Passionately championed the advancement and recognition of the ISM Report On Business® and the PMI

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The Report On Business®

Surveying manufacturing since 1931– Approximately 350 respondents– 18 NAICS categories– Weighted by contribution to GDP

Non-manufacturing started in June 1998– Approximately 350 respondents– 18 NAICS categories– Weighted by contribution to GDP

7

Manufacturing Semiannual ForecastCurrent Operating Rate

Percent of Normal Capacity

April 2013 80.2%

December 2012 77.5%

April 2012 81.6 %

Manufacturing

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Reported for 2012

Production Capacity Change

April 2013 + 6.7%December 2012 + 6.8%

Predicted for 2013

December 2012 + 1.3%Production Capacity Mfg

Production Capacity Mfg

9

Predicted2013 vs. 2012

Capital Expenditures

Capital Expenditures Mfg April 2013 + 9.1%December 2012 + 7.6%

10

Price Changes MfgApril 2013 + 1.4%

Purchase Price Changes

Reported April 2013 vs. End 2012

Predicted End 2013 vs. End 2012

Price Changes MfgApril 2013 + 2.3%

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Predicted Employment Change

Employment Changes MfgApril 2013 + 0.9%

Predicted End 2013 vs. April 2013

Predicted End 2013 vs. End 2012

Employment Changes MfgDecember 2012 + 0.8%

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Business Revenues (nominal)

Business Revenues MfgApril 2013 + 4.8%December 2012 + 4.6%

Predicted 2013 vs. 2012

13

Manufacturing1. Wood Products

2. Furniture & Related Products

3. Nonmetallic Mineral Products

4. Petroleum & Coal Products

5. Electrical Equipment, Appliances & Components

Predicted Increase in Business Revenues by Industry

2013 vs. 2012

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PMI 2005 – March 2013

Jan-05

Jul-0

5

Jan-06

Jul-0

6

Jan-07

Jul-0

7

Jan-08

Jul-0

8

Jan-09

Jul-0

9

Jan-10

Jul-1

0

Jan-11

Jul-1

1

Jan-12

Jul-1

2

Jan-13

Jul-1

332

42

52

62

PMI 50% Breakeven - Mfg Economy 42.2% Breakeven - Overall Economy

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PMI Annual AverageRelative to Midpoint of 50

2012 Average: 51.7%2013 Average (through March): 52.9%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

-14-12.5

-11-9.5

-8-6.5

-5-3.5

-2-0.5

12.5

45.5

78.510

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Percent of Normal Capacity

April 2013 84.7%

December 2012 85.4%

April 2012 85.2%

Non-Manufacturing

Non-Manufacturing Semiannual ForecastCurrent Operating Rate

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Reported for 2012

Production Capacity Change

April 2013 + 2.3%December 2012 + 3.4%

Predicted for 2013

December 2012 + 3.2%Production Capacity Non-Mfg

Production Capacity Non-Mfg

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Predicted2013 vs. 2012

Capital Expenditures

Capital Expenditures Non-Mfg April 2013 + 3.6%December 2012 + 7.0%

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Price Changes Non-MfgApril 2013 + 1.9%

Purchase Price Changes

Reported April 2013 vs. End 2012

Predicted End 2013 vs. End 2012

Price Changes Non-MfgApril 2013 + 2.4%

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Predicted Employment Change

Employment Changes Non-MfgApril 2013 + 1.3%

Predicted End 2013 vs. April 2013

Predicted End 2013 vs. End 2012

Employment Changes Non-MfgDecember 2012 + 1.3%

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Business Revenues (nominal)

Business Revenues Non-Mfg

April 2013 + 3.5%

December 2012 + 4.3%

Predicted 2013 vs. 2012

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Non-Manufacturing1. Construction

2. Transportation & Warehousing

3. Retail Trade

4. Professional, Scientific & Technical

Services

5. Other Services

Predicted Increase in Business Revenues by Industry

2013 vs. 2012

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NMI January 2008 – March 2013

Jan-08Jul-08

Jan-09Jul-09

Jan-10Jul-10

Jan-11Jul-11

Jan-12Jul-12

Jan-1335

40

45

50

55

60

NMI

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Comparison of PMI and NMIJanuary 2008 – March 2013

Jan-08Jul-08

Jan-09Jul-09

Jan-10Jul-10

Jan-11Jul-11

Jan-12Jul-12

Jan-1333

38

43

48

53

58

63

NMI PMI 50% Breakeven

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NMI Annual AverageAnnual Average Relative to Midpoint of 50

2012 Average: 54.6% 2013 Average (through March): 55.2%

2008 2009 2010 2011 2012 2013

-10-8.5

-7-5.5

-4-2.5

-10.5

23.5

56.5

89.511

12.514

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Non-Manufacturing Business Activity IndexAnnual Average Relative to Midpoint of 50

2012 Average: 57.7%2013 Average (through March): 56.6%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

-4

-2

0

2

4

6

8

10

12

14

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Operating rate is currently 80.2% of normal capacity. Production capacity is expected to increase 6.7% in

2013. Capital expenditures are expected to increase 9.1% in

2013. Prices paid increased 1.4% through the end of April

2013. Prices are expected to increase a total of 2.3% for all of

2013, indicating an expected increase in prices of 0.9% for the remainder of the year.

Manufacturing SectorSummary

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Manufacturing employment is expected to increase 0.9% during the remainder of 2013.

Manufacturing revenues are expected to increase 4.8% in 2013.

Overall, manufacturing is expected to continue growing in 2013.

Manufacturing SectorSummary (continued)

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Operating rate is currently 84.7% of normal capacity. Production capacity is expected to increase 2.3% in

2013. Capital expenditures are expected to increase 3.6% in

2013. Prices paid increased 1.9% through the end of April 2013. Prices are expected to increase an additional 0.5% over

the remainder of the year, for a total 2013 increase of 2.4%.

Non-Manufacturing SectorSummary

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Non-manufacturing employment is expected to increase 1.3% during the balance of 2013.

Non-manufacturing revenues are expected to increase 3.5% in 2013.

The non-manufacturing sector is projected to maintain the course of sustainable growth in 2013.

Non-Manufacturing SectorSummary (continued)

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Bernard Baumohl, Chief Global Economist atThe Economic Outlook Group