1. 1 2011 Semiannual Forecast Report December 6, 2011 ISM Business Survey Committees

2. 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. 3 PMI 2002 - November 2011 2002 - November 2011

4. 4 NMI 2008 - November 2011

5. 5 Non-Manufacturing Business Activity 2002 – November 2011

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

7. 7 Production Capacity Change Reported 2011 vs. 2010 Production Capacity Dec 2011 MfgNon-Mfg + 4.6%+ 1.1%

8. 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. 9 More hours worked with existing personnel Additional personnel (permanent, temporary or contract) Additional plant and/or equipment Replaced equipment with technically advanced equipment Production Capacity: Non-Manufacturing Principal Means of Achieving Increases in 2011:

10. 10 Production Capacity Change Predicted For 2012 Predicted Production Capacity MfgNon-Mfg + 5.6%+ 3.2%

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

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

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

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

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

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

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

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

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

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

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

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

23. 23 MfgNon-Mfg Better41%35% Same43%50% Worse16%15% Diffusion Index62.5%60% First Half 2012 vs. Last Half 2011 Business in 2012

24. 24 Second Half 2012 vs. First Half 2012 MfgNon-Mfg Better39%37% Same53%53% Worse 8%10% Diffusion Index65.5%63.5% Business in 2012

25. 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. 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. 27 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 Supply Chain Improvements 2012

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

29. 29 Change for 2012 vs. 2011 MfgNon-Mfg Expect to Increase17%13% Expect No Change54%68% Expect to Decrease29%19% Diffusion Index44%47% Predicted Inventory-to-Sales Ratio

30. 30 Business Outlook Next 12 Months MfgNon-Mfg Better46%44% Same38%38% Worse16%18% Diffusion Index65%63%

31. 31 Strength of the U.S. Dollar for 2012 Manufacturing Dec 201249.2% Dec 201144.1% Average Diffusion Index for U.S. Dollar vs. 7 Major Currencies

32. 32 Reported Profit Margins Apr 2011 – Nov 2011 MfgNon-Mfg Better31%27% Same32%37% Worse37%36% Diffusion Index47%45.5%

33. 33 Predicted Profit Margins Nov 2011 – Apr 2012 MfgNon-Mfg Better40%32% Same41%50% Worse19%18% Diffusion Index60.5%57%

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

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

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

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

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

39. 39 Summary Non-Manufacturing continued n Non-manufacturing revenues (nominal) are up 1.5% in 2011. n Non-manufacturing revenues (nominal) are expected to rise 3.1% in 2012. n 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. 40 Questions