Manufacturing Optimism

Manufacturers are optimistic about 2011, according to the Institute for Supply Management's Spring 2011 Semiannual Economic Forecast, as they break free of the economic doldrums. The ISM survey found that 68% expect revenues to increase 13.2% in 2011 over 2010, yielding an increase in net revenues of 7.5%. Purchasing and supply managers reported their companies currently operate at 83.2% of normal capacity, up from 80.2% in December 2010 and 72.8% in April 2010, and the highest since 84.5% peak in December 2006. Survey respondents expected a 17.9% increase in capital expenditures in 2011, with overall production capacity increasing by 8.1% for 2011. They also expected to hire 2.9% more workers in the coming months.

As for those 2011 commodity and other raw material increases, the survey found 83% expected the prices they pay to increase by 9.1% compared to the end of 2010, but expected to pass along an average of 34% of those prices to their customers. Two industries -- Primary Metals and Plastics & Rubber Products -- indicated they would be able to pass along more than 75% of the increases received. Put in other words, suppliers are expecting to eat some of the costs, but retailers and ultimately consumers should brace for more price hikes as the year rolls on.