Economic growth in the U.S. will continue in the second half of 2006, say the nation’s purchasing and supply management executives in their spring 2006 Semiannual Economic Forecast.

These projections are part of the forecast issued by the Business Survey Committee of the Institute for Supply Management (ISM).

Expectations remain high, as 72 percent of survey respondents forecast revenues to be greater in 2006 than in 2005. Expectations are higher overall, as the panel of purchasing and supply executives now expects a 6.6 percent net increase in overall revenues for 2006 compared to their December 2005 forecast of 5.4 percent.

Industries expecting above-average improvement in 2006 are: Apparel; Electronic Components & Equipment; Glass, Stone & Aggregate; Food; Primary Metals; Instruments & Photographic Equipment; and Industrial & Commercial Equipment & Computers.

Of those surveyed, 68 percent of non-manufacturing purchasing and supply executives expect their 2006 revenues to be greater than in 2005. They currently expect a 6 percent net increase in overall revenues compared to a 5.8 percent increase reported for 2005.

Non-manufacturing industries expecting average or greater improvement in 2006 are Real Estate; Mining; Business Services; Entertainment; Construction; Transportation; Utilities; Wholesale Trade; Finance & Banking; and Retail Trade.

Operating capacity

Manufacturing purchasing and supply executives report that their companies are currently operating at 85.6 percent of normal capacity. This is an increase from December 2005 (85.3 percent) and less than the rate reported in April 2005 (86.8 percent). Although the current rate is slightly less than the 10-year high reported in April 2000 (87.4 percent), it is two percentage points higher than the 10-year average of 83.6 percent.

Recent monthly data from the Manufacturing ISM Report On Business indicates the manufacturing sector has grown for 35 consecutive months. The following nine industries are operating at or above the average capacity of 85.6 percent: Apparel; Electronic Components & Equipment; Primary Metals; Glass, Stone & Aggregate; Paper; Rubber & Plastic Products; Food; and Wood & Wood Products.

Non-manufacturing purchasing and supply executives report that their organizations are currently operating at 88.4 percent of normal capacity. The following industries are operating at capacity levels at or above the average rate: Real Estate; Mining; Finance & Banking; Utilities; Transportation; Public Administration; Legal Services; and Insurance.

Capital spending

Supply executives expect capital expenditures to rise 6.1 percent in 2006. This is a significant revision in expectations when compared to the prediction of 9 percent in the December 2005 forecast for 2006. The 38 percent of respondents who predict increased capital expenditures in 2006 indicate an average increase of 28.9 percent, while the 16 percent who said their capital spending would be reduced predict an average decrease of 29.6 percent; 46 percent said they expect to spend the same in 2006 as in 2005.

Industries showing the largest increases (five percent or more) in capital expenditures for 2006 — in order of percentage increase — were: Industrial & Commercial Equipment & Computers; Glass, Stone & Aggregate; Transportation & Equipment; Primary Metals; Fabricated Metals; Apparel; and Instruments & Photographic Equipment.

Non-manufacturing purchasing and supply executives are expecting to increase their level of capital expenditures by 7.8 percent in 2006 compared to 2005. The 42 percent of members expecting to spend more predict an average increase of 25.9 percent. An additional 14 percent anticipate a decrease averaging 21.3 percent. However, 44 percent expect to spend the same on capital expenditures in 2006 as in 2005.

Industries expecting greater than the average 7.8 percent increase in capital expenditures in 2006 are: Retail Trade; Utilities; Mining; and Insurance.

Employment

ISM’s Manufacturing Business Survey Committee members report employment growth for the balance of 2006, as members now forecast that manufacturing employment will increase 0.9 percent during the balance of 2006, with 37 percent expecting employment to be an average of 6.5 percent higher. This is compared to the 14 percent who predict employment to be lower by an average of 10.9 percent. The remaining 49 percent of members expect their employment levels to be unchanged in 2006.

Industries expecting the highest increases in employment through the remainder of 2006 are: Primary Metals; Electronic Components & Equipment; Transportation & Equipment; Apparel; Textiles; Glass, Stone & Aggregate; Food; and Furniture.

ISM’s Non-Manufacturing Business Survey Committee members forecast that employment will increase 2.1 percent during the balance of 2006. For the remaining months of 2006, 38 percent expect higher levels of employment, 9 percent of members anticipate lower levels, and 53 percent expect their employment levels to be unchanged.

Industries anticipating above-average increases in their employment in the coming months of 2006 are: Entertainment; Business Services; Health Services; Construction; and Communication.