Institute for Supply Management, GreaterGrandRapids,Inc.P.O.Box230621GrandRapids,MI49523-0321

News Release (For Immediate Release) November 4, 2015

Current Business Trends By Brian G. Long, Ph.D., C.P.M. Director, Supply Chain Management Research Grand Valley State University (269) 323-2359 Slower Growth: Still Growing, But Slower Forwhatnowseemslikethe40thtime,slowgrowthis still the best way to describe the West Michiganeconomy, according to the data and commentscollected in the last twoweeksofOctober2015.Ourclosely watched index of NEW ORDERS remainedpositivebutedgedslightly lowerto+9 from+13.ThePRODUCTIONindexretreatedto+3from+12.Activityinthepurchasingoffices,ourindexofPURCHASES,rosemodestlyto+6from+0.FortheEMPLOYMENTindex,itwasgratifyingtoseetheindexflipbacktopositiveat+5, up from -3. Even though the West Michiganeconomyhasflattened,wearestillmodestlybetteroffthantheU.S.economyasawhole.Aslongassalesforautoparts,officefurniture,andaerospaceremainnearrecord levels, the West Michigan economy shouldcontinueonthepathofslowgrowth.Onerespondentnoted thatwe are now at the top of our game, andthereseemstobelittleroomforupwardexpansion.Inaddition,mostindustrialbusinessesareasprofitableastheyhavebeeninmanyyears.However,anoteofcautioncomesfromthedatawecollect for business confidence. The SHORT TERMBUSINESS OUTLOOK index is still positive butbacktracked to +4 from +11, a two-year low.Geopolitical events have continued to dampen theoutlook forsomerespondents. Incontrast,ourLONGTERMBUSINESSOUTLOOKindexmovedupto+44from+38.Lookingaswealwaysdoatindividualindustries,notmuchhaschangedoverthepastseveralmonths.Theautomotivepartsproducersarestillnearfullcapacity,although the rate of plant expansion seems to haveslowed.Theofficefurniturebusinessisstillnearanall-timehigh,andlocalfirmsarestillfindingnewwaystogrow. The aerospace industry is smaller thanautomotivepartsandofficefurniture,butnewordersremaindrivenbythemajorplayersintheindustrylikeBoeing and Airbus. One weak spot that may beemerging is the capital equipment industry, whereforeigncompetitorsarediscountingpricesbecauseofthe softer sales in China and Western Europe. Ourindustrialdistributorsreportedbusinessconditionstoremainontrack,withnomajorproblems.At thenational level, theNovemberpress releasefromtheInstituteforSupplyManagement,ourparentorganization, remainednear flat. ISM’s indexofNEWORDERS returned to positive at +1, up from -3. ThePRODUCTIONindexroseinfinitesimallyto+2from+1.TheEMPLOYMENTindexedgedlowerto-8,downfrom-3. ISM’s overall index eased to 50.1 from 50.2.Comments from the respondents reflected concernoverthehighpriceofthedollarandthecontinuinglowprice of oil,mixedwith cautious optimism.However,ISM’s index of NEW EXPORT ORDERS came in at -5,slightly better than the -7 reported lastmonth. ThestrongdollarmakesU.S.goodsmoreexpensivetotherestoftheworld,butsofar,thebottomisnotfallingoutoftheexportmarketassomepunditspredicted.

AcontrastingviewoftheU.S.economycomesfromthe international economics consulting firm ofMarkit.com. For October, the report posted thesharpest improvement in overall business conditionssinceApril.ThesurveyauthorsnotethatstrongerU.S.manufacturingperformanceisdrivenbyfasterrisesinoutput,neworders,andemployment levels.Markit’sPMI rose to54.1, up from53.1 in September. This iswellabovetheISM’sindexof50.1.Thesurveyauthorfurthernoted:

“Stronger manufacturing growth in Octoberbringsencouragingnewsafter thesectorsawthepaceofexpansionslumptoatwo-yearlowin the third quarter. Factory output growthaccelerated, equivalent to around a 4%annualizedrateofincrease,asfirmssawthelargestmonthlyjumpinneworderinflowssinceMarch.Exportgrowthhasalsorevived,suggestingfirmsaremanagingtoadapttothestrongerdollar,asjobcreationpickedupafterslowinginSeptember.”

Internationally, the November 2 press release fortheJ.P.MorganGlobalManufacturingIndexcameinat51.4,upfrom50.7inOctober.BusinessconditionsforafewkeycountrieslikeIreland,Germany,Netherlands,Italy,andSpaincontinuetopostmodestgains.Mexico,oursecondlargesttradingpartner,reportedaPMIof53.0forthemonth,upnicelyfrom52.1.Afteryearsofnegativenumbers,businessconditionsinFrancehavefinallyflippedbacktopositive.ThePMIforCanada,ourlargesttradingpartner,sankto48.0,downfrom48.6.Other countries like Greece, Russia, China, Turkey,Brazil, Indonesia, and South Africa are pulling thenumbers down for the international average. Thesurveyauthorfurthernoted:

“Export orders showed the largest monthlygain for four months, which may help allayfears that weaker growthin China andother emerging markets is derailing theEurozone’s recovery. Upturns are starting tolook tired in countries that were performingstrongly earlier in the year, with rates ofgrowth slowing in Ireland and Spain. Tepidgrowth in Germany and an ongoing nearstagnation in France left Italy as a somewhatsurprisingstarperformer.”

Although the October survey numbers are notspectacular,2015hasbeenaverygoodyearforWestMichigan. Because Economics 101 tells us thatemploymentisaneconomiclaggard,itisnotsurprisingto see that thismonth’sunemploymentupdate fromtheMichiganDepartmentofTechnology,Managementand Budget (DTMB) continues to improve. For themonth of October, Michigan added another 10, 000new jobs. The “official” number of unemployedworkers fell to235,000. ForWestMichigan,mostoftheunemployment rates continue to staywellbelowthestaterateof5.0%.OttawaCountyisstillourbest

performer at 3.0% unemployment, followed by KentCountyat3.1%andKalamazooCountyat3.7%.Nomatterhowtheunemploymentrateiscalculated,the results are still just estimates. The 5.0%unemployment rate for Michigan is the so-called“official”rate,butit is intendedtobeaguide,notanabsolutenumber.FortheBLS,this“official”statisticislabeled U-3, and constitutes the percentage of thelabor force that is currentlyunemployedandactivelylookingforwork.Thebroadermeasure,entitledU-6,isthe “…total unemployed, plus all persons marginallyattached to the labor force,plus totalemployedparttimeforeconomicreasons,asapercentofthecivilianlaborforce,plusallpersonsmarginallyattachedtothelaborforce.”Forsomeproponents,thiscanbecalledthe“realunemploymentrate.”AsofSeptember2015,thatU-6numberstandsat12.0%inMichigan,whichisalsoa12-yearlow.Inotherwords,bothU-3andU-6havebeenfallingatapproximatelythesamerate.Oneoftheimportantthingstolookatisthetrend.One year ago, Michigan’s official rate was 5.9%.Because the methodology for calculatingunemploymenthasnotchanged,itissafetoconcludethattheoverallunemploymentsituationisimproving.Because themethodology is the same for the entirestate, comparisons can be made between variousgeographical governmental units based on theresidency of the persons surveyed. Here’s theconfusion: A person living in Kentwood(unemployment 2.9%) may work in Grand Rapids(unemployment 4.1%). Hence, residency and joblocationaretwodifferentthings.Anotherfactorthatismuchmoreunsettlingisthenumberofpeoplewhohavesimplydroppedoutofthe

laborforce.Ifthesepeoplehadnotdroppedout,allofourunemploymentnumberswouldbeMUCHhigher.AutosalesforOctobercameinataSAARrateof18.2millionunits, oneof the strongestmonths inhistory.FortheDetroitThree,GMgained15.9%,Ford13.4%,and Chrysler 14.6%. For other major brands, Toyotaadded 13.0%, Honda 8.6%, Nissan 12.5%, andVolkswagen 5.4%. Truecar estimates that financialincentives rose 14% to 3,104 per vehicle last monthcompared to October 2014. Besides generousincentives, lower gasoline prices and record-lowfinancerateswerealsocitedasreasonsforthestrongperformance.Justlikemostof2015,thegainsformanyautomakerswereprimarilycenteredonlighttrucksandSUVs.In summary, the world economy still remains thegreatestthreattotheU.S.economy,althoughOctobersaw many of the worldwide statistics begin tomoderate,andsomestatisticsimprovedconsiderably.Low commodity prices continue to be a two-edgedsword, resulting in the extractive economies ofcountries like Canada and Australia softening, butindustrialnations like JapanandGermanybenefittingfrom the lower costs. The U.S. economy is bothindustrial and extractive, so we are caught in themiddle.Asalways,thereremainstheriskofasurprisethatwedon’tsee,suchasaterroristact.ItisalsoworthrememberingthattheFederalReserveminutesupuntilthree months before the Lehman Brothers collapseconcluded that the economy was still on a strongfooting.TheeconomistsontheFedBoardaresupposedtobeamongthebestandthebrightest,andeventheywere blindsided. Let’s hope that it doesn’t happenagain.

OCTOBER2015COMMENTSFROMSURVEYPARTICIPANTS“Weareseeingsomestrengtheninginpricingfor

metals,butthiswilllikelybeshortlivedbecausethefundamentalshavenotchanged.”

“Pricestagnationstillrules.”“Weanticipatesteelpriceswillstarttoincrease

soon.”“Machinetoolscompaniescontinuetobevery

competitiveandaredroppingprices.”“Weareseeingsomestrengtheninginpricingfor

metals,butthiswilllikelybeshortlivedbecausethefundamentalshavenotchanged.”

“Pricestagnationstillrules.”“Weanticipatesteelpriceswillstarttoincrease

soon.”“Machinetoolscompaniescontinuetobevery

competitiveanFuel,scrapcarbonsteel,scrapstainlesssteel,PVC

resin,acrylicprocessaids,coldrolledsteel,naturalgas,copper,brass,wire,aluminum,fuel,stainlesssteel,allscrapmetal.

“Durablegoodsordersdemandseemstobeflailing.”

“We’reseeingatypicalfourthquarterslowdownforclass8truckmarket.Long-termoutlookstillsolid.”

“Howmuchlongeruntiltheelection?Oh,that’sright.Overayearyet.”

“Stable,butsalesarebitslowerthanwewouldlike.”

“Oursalesforecastisdroppingoffduetosofteningofaftermarketsales.”

“Thingsarepickingupagreatdeal.”“Businessispickingup,butitstillseemsvery

volatile.”“Orderactivityhashitawall.Thelastcoupleweeks

isunusuallyslow.”“Weareverybusy.Businessisgoodintheoffice

furnitureworldrightnow.”“Saleswereokthissummer.Wearegoingintofall,

andthingslookalittleweaker.”

“Wecontinuetoseearetractionoforders,andthishasresultedinareductionofourworkforce.Wedonotanticipateanychangeinthenextfewmonths.”

“WewillendtheyearandstarttheNewYearverystrong.Businessstilllooksverypromisingforboththeshort&longtermoutlook.”

“Automotiveshipmentsareup,possiblybuildinginventorybecauseofcontractnegotiationswiththeUAW.”

“Lookingaheadseveralyears,itlookslikeourChinabusinesswillshifttoMexicoasitbecomesmoreexpensivetoproduceinChina.”

“Wearetrendingtowardastrongfourthquarter.”“Itisroughgoingingasandoilbusiness,”“Wearereducingforecastfortheyear,andwe

won'tmakeuptheshortfallsfromthelasttwomonths.”“It'sbeenagreatyearsofar!”“Wewillfinishtheyear2015strong,andcurrently

2016looksverypromising.ButanelectionyearIamcautiouslyoptimistic.”

“Ourmedicaldevicepackagingandrelatedbusinesshasbeenupforseveralmonths.Ourfutureisbright.”

“Theverybusyleadtimeforusisout16-18weeks”“Wearestilltryingtocatchuponbackorders.We

arestillhavingtroublehiring/keepingproductionworkers.”“Projectsarebusy,butsalesordersarenot.”“Ithasbeenaverybusythelastcoupleofmonths

wrappingupprojectsbeforewinter.““Businessisstartingtoslow.”“TheendofSeptemberperkedupabit,butnot

enoughtosaveitfrombeingadownmonthcomparedtoAugust.Septemberwas20%belowJuly.Thearrowistrendingdownaswestartthethirdquarter.Itwouldbenicetoturnthisaround,butactivityseemsslow.”

“Evenwiththeautomotivesectorbeingasstrongasitis,itisnotenoughtooffsetthesteelindustriesovercapacityissues.Thesteelindustryisinforarockyroad.”

“Theendoftheyearisslowingdown,butprojectionsstilllookgoodfornextyear.”

October2015SurveyStatistics

Oct. Sept. Aug. 25 Year

UP SAME DOWN N/A Index Index Index Average Sales (New Orders) 31% 46% 22% 1% + 9 +13 + 5 +14 Production 25% 47% 22% 6% + 3 +12 + 3 +14 Employment 15% 75% 10% + 5 - 3 + 7 + 8 Purchases 25% 56% 19% + 6 + 0 +12 + 7 Prices Paid (major commod.) 7% 72% 19% -12 -17 -12 +15 Lead Times (from suppliers) 12% 76% 12% + 0 + 6 +10 +11 Purchased Materials Inv. 9% 65% 19% 7% -10 + 0 + 8 - 4 (Raw materials & supplies) Finished Goods Inventory 10% 67% 16% 7% - 6 + 6 + 4 - 8 Short Term Business Outlook 26% 52% 20% + 4 +11 +16 - (Next 3-6 months) Long Term Business Outlook 47% 46% 4% 3% +44 +38 +38 - (Next 3-5 years) Itemsinshortsupply:Plasticizers,polypropylene,stainlesssteel,slagaggregate,constructionequipment,specialtyaluminumsheets,labor.

PricesontheUPside:Aluminum,plastics,polypropylene,slagaggregate,2nssand,sodiumchloride,heavydutydumptrucks,labor.

PricesontheDOWNside:Fuel,scrapcarbonsteel,scrapstainlesssteel,PVCresin,acrylicprocessaids,coldrolledsteel,naturalgas,copper,brass,wire,aluminum,*stainlesssteel,allscrapmetal.

*Note:ItemsmarkedwithanasteriskarereportedasBOTHupANDdownbydifferentsurveyparticipants.

LatestUnemploymentReports(Exceptasnoted,dataareNOTseasonallyadjusted)

Sept.Sept.Aug.20Year201520142009LowStateofMichigan(Adj.)5.0%5.9%14.6%3.2%StateofMichigan(Unadj.)4.7%5.7%14.1%2.9%

KentCounty 3.1%4.3%11.9%2.1%

KalamazooCounty 3.7%5.1%11.1%2.1%

CalhounCounty4.2%5.6%12.8%2.7%

OttawaCounty 3.0%4.1%13.3%1.8%

BarryCounty 3.4%4.7%10.9%2.2%

KalamazooCity4.6%6.3%15.2%3.2%

PortageCity3.4%4.6%8.7%1.3%

GrandRapidsCity4.1%5.8%16.1%3.0%

KentwoodCity2.9%4.1%10.7%1.4%

PlainfieldTwp.2.5%3.7%8.0%1.4%

U.S.OfficialRate(Sept.)5.1%5.9%9.6%3.8%U.S.RateUnadjusted4.9%5.7%9.6%3.6%

U.S.U-6Rate**10.0%11.7%16.7%8.0%

**U-6forMichigan=12.6%forJuly2014toJune2015

IndexofNewOrders:WestMichigan

Asthenameimplies,thisindexmeasuresnewbusinesscomingintothefirm,andsignifiesbusinessimprovementorbusinessdecline.Whenthisindexispositiveforanextendedperiodoftime,itimpliesthatthefirmororganizationwillsoonneedtopurchasemorerawmaterialsandservices,hiremorepeople,orpossiblyexpandfacilities.Sincenewordersareoftenreceivedweeksorevenmonthsbeforeanymoneyisactuallypaid,thisindexisourbestviewofthefuture.LatestReport +9forthemonthofOctober,2015PreviousMonth+5forthemonthofSeptember,2015

OneYearAgo+26forthemonthofOctober,2014

RecordLow -57forthemonthofDecember,2008

RecordHigh+55forthemonthofSeptember,1994

FirstRecovery+3inAprilof2009andforward

ISM-WestMichiganIndexofNewOrders1988-2015

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ISM-WestMichiganIndexofNewOrders:2005-2015Only

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ISM-WestMichiganIndexofEmploymentTheindexofEMPLOYMENTmeasuresthefirm’sincreasesanddecreasesinstaffing,includingpermanentworkersandtemps.Aftereconomicdownturns,itmeasurenewhiresaswellaspreviousworkerscalledbacktowork.Whenthisindexispositiveforanextendedperiodoftime,italmostalwayssignalsareductioninindustrialunemploymentforWestMichigan. Normally, there isaboutamonthor two in lag timebetween this reportand thepayrollnumbersbeingreflectedbythegovernmentstatistics.However,almostallemploymentindexesarelaggards,meaningthatfirmsoftenwaituntilupticksinordersareconfirmedbeforeaddingstaff,andconverselylayingoffstaffonlyafteradownturninordersappearstobecertainfortheforeseeablefuture.

ISM-WestMichiganFutureBusinessOutlookTheindexesofLONGTERMBUSINESSOUTLOOKandSHORTTERMBUSIESSOUTLOOKprovideaglimpseatcurrentandfutureattitudesofthebusinesscommunity.Traditionally,mostbusinessesaremoreoptimisticaboutthelongterm,althoughcurrenteventcanresultinperceptionschangingveryrapidly.Bothshortandlongtermattitudesreflectcurrentbusinessconditions,andareusuallyhigherwhensales,production,andemploymentarepositive.

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ISM-WESTMICHIGANEMPLOYMENTINDEX2005-2015

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4

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5

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SHORTTERMBUSINESSOUTLOOK(3-6MONTHS)LONGTERMBUSINESSOUTLOOK(3-5YEARS)