2011 Semiannual Forecast Report

1. 2011 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 2002 - November 2011 2002 - November 2011

4. NMI 2008 - November 2011

5. Non-Manufacturing Business Activity2002 – November 2011

6. Current Operating Rate Percent of Normal Capacity • December 2011 79.2% • April 2011 83.2% • December 2010 80.2% • December 2011 85.2% • April 2011 83.7% • December 2010 82.9% Manufacturing Non-Manufacturing

7. Production Capacity ChangeReported 2011 vs. 2010 Production Capacity Dec 2011 Mfg Non-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. Production Capacity: Non-Manufacturing Principal Means of Achieving Increases in 2011: • More hours worked with existing personnel • Additional personnel (permanent, temporary or contract) • Additional plant and/or equipment • Replaced equipment with technically advanced equipment

10. Production Capacity ChangePredicted For 2012 Predicted Production Capacity Mfg Non-Mfg + 5.6% + 3.2%

11. Capital Expenditures Actual 2011 vs. 2010 Predicted 2012 vs. 2011 Mfg Non-Mfg + 11.0% + 4.0% Mfg Non-Mfg + 1.9% + 0.1%

12. Reported Purchase Price Changes Price Changes Mfg Non-Mfg Dec 2011 + 5.7% + 2.8% End 2011 vs. End 2010

13. December 2011 Predicted Purchase Price Changes Mfg Non-Mfg April 2012 vs. End 2011 + 2.0% + 2.1% End 2012 vs. End 2011 + 2.9% + 2.7%

14. Predicted Labor and Benefit Costs Labor & Benefit Costs Mfg Non-Mfg Dec 2011 + 2.4% + 1.8% 2012 vs. 2011

15. Predicted Employment Change End 2012 vs. End 2011 Overall Employment Mfg Non-Mfg Dec 2011 + 1.3% + 1.1%

16. Exports: Predicted Change FirstHalf 2012 Manufacturing 80.5 78 76 75.5 75.0 74.4 73.0 71.5 69.9 68.5 65.5 63.5 58.4 Note: 80.6% of Manufacturing respondents export

17. Exports: Predicted Change First Half 2012 Non-Manufacturing 81 76.3 76 75 73 69 69.5 68.9 67.5 65 64 59.1 50 Note: 29.1% of Non-Manufacturing respondents export

18. Imports: Predicted Change First Half 2012 Manufacturing 80 77.5 77.5 73 68.0 68.8 65.7 66.7 65.5 64 62.9 61.5 48.6 Note: 86.6% of Manufacturing respondents import

19. Imports: Predicted Change First Half 2012 Non-Manufacturing 80.5 73.5 72.5 68.5 68 63.6 65.5 65.1 62 60.5 58 55.5 51.1 Note: 49.6% of Non-Manufacturing respondents import

20. Business Revenues (nominal) December 2011 Mfg Non-Mfg Reported 2011 vs. 2010 + 7.0% + 1.5% Predicted 2012 vs. 2011 + 5.5% + 3.1%

21. Industries Predicting Growth in Revenues 2012 vs. 2011 — Manufacturing Transportation Equipment Paper Products Printing & Related Support Activities Plastics & Rubber Products Food, Beverage & Tobacco Products Primary Metals Fabricated Metal Products Chemical Products Miscellaneous Manufacturing • Computer & Electronic Products • Machinery • Petroleum & Coal Products • Wood Products • Nonmetallic Mineral Products • Electrical Equipment, Appliances & Components • Apparel, Leather & Allied Products • Furniture & Related Products

22. Industries Predicting Growth in Revenues 2012 vs. 2011 — Non-Manufacturing Transportation & Warehousing Arts, Entertainment & Recreation Accommodation & Food Services Real Estate, Rental & Leasing Finance & Insurance Utilities Public Administration • Professional, Scientific & Technical Services • Mining • Construction • Other Services • Wholesale Trade • Agriculture, Forestry, Fishing & Hunting • Information • Retail Trade

23. Business in 2012 First Half 2012 vs. Last Half 2011 Mfg Non-Mfg Better 41% 35% Same 43% 50% Worse 16% 15% Diffusion Index 62.5% 60%

24. Business in 2012 Second Half 2012 vs. First Half 2012 Mfg Non-Mfg Better 39% 37% Same 53% 53% Worse 8% 10% Diffusion Index 65.5% 63.5%

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. Supply Chain Improvements 2012 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

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

29. Change for 2012 vs. 2011 Predicted Inventory-to-Sales Ratio Mfg Non-Mfg Expect to Increase 17% 13% Expect No Change 54% 68% Expect to Decrease 29% 19% Diffusion Index 44% 47%

30. Business Outlook Next 12 Months Mfg Non-Mfg Better 46% 44% Same 38% 38% Worse 16% 18% Diffusion Index 65% 63%

31. Strength of the U.S. Dollar for 2012 Manufacturing Dec 2012 49.2% Dec 2011 44.1% Average Diffusion Index for U.S. Dollar vs. 7 Major Currencies

32. Reported Profit MarginsApr 2011 – Nov 2011 Mfg Non-Mfg Better 31% 27% Same 32% 37% Worse 37% 36% Diffusion Index 47% 45.5%

33. Predicted Profit MarginsNov 2011 – Apr 2012 Mfg Non-Mfg Better 40% 32% Same 41% 50% Worse 19% 18% Diffusion Index 60.5% 57%

34. Summary Manufacturing • Operating rate is currently at 79.2%. • Production capacity increased by 4.6% in 2011. • Production capacity is expected to increase by 5.6% in 2012. • Capital expenditures increased 11% in 2011. • Capital expenditures are expected to increase 1.9% in 2012.

35. Summary Manufacturingcontinued • Prices paid increased 5.7% in 2011. • Overall 2012 prices paid are expected to increase 2.9%. • Labor and benefit costs are expected to increase 2.4% in 2012. • Manufacturing employment is expected to increase 1.3% in 2012. • Expect growth in U.S. exports in 2012. • Expect growth in U.S. imports in 2012.

36. Summary Manufacturingcontinued • Manufacturing revenues (nominal) are up 7% in 2011. • Manufacturing revenues (nominal) are expected to increase 5.5% in 2012. • The U.S. dollar is expected to weaken slightly on average versus major trading partner currencies in 2012. • Overall attitude of manufacturing supply managers: optimistic, with 84% of respondents predicting 2012 will be the same as or better than 2011.

37. Summary Non-Manufacturing • Operating rate is currently at 85.2%. • Production capacity increased 1.1% in 2011. • Production and provision capacity is expected to increase 3.2% in 2012. • Capital expenditures increased 4% in 2011. • Capital expenditures are expected to increase 0.1% in 2012. • Prices paid increased 2.8% in 2011.

38. Summary Non-Manufacturing continued • Prices paid are expected to increase 2.7% in 2012. • Labor and benefit costs are expected to increase 1.8% in 2012. • Non-manufacturing employment is expected to increase 1.1% in 2012. • Expect export levels to increase in 2012. • Expect import growth in 2012.

39. Summary Non-Manufacturing continued • Non-manufacturing revenues (nominal) are up 1.5% in 2011. • Non-manufacturing revenues (nominal) are expected to rise 3.1% in 2012. • 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