U.S. economic growth will resume in 2010, leading to a rebound in manufacturing and services sector revenues, but the weak dollar poses risks, industry experts said on Tuesday.
The Institute for Supply Management said its panel of purchasing and supply executives expects a 5.7 percent net increase in overall revenues for 2010, compared to a 10.7 percent decrease reported for 2009.
The services sector expects to see a 1.3 percent net increase in overall revenues for 2010 compared to a 4.5 percent decrease reported for 2009, the ISM said in its semiannual economic forecast.
This is good news for an economy struggling to overcome the worst recession in decades. But, considering the manufacturing sector's heavy reliance on exports, the weak dollar presents potential rewards as well as risks.
About 80 percent of our manufacturers export so there are some positives if other parts of the world -- China, India, Europe -- are recovering faster than the U.S. that we pick up some business coming from overseas, Norbert Ore, chairman of the ISM manufacturing business survey committee, told journalists in a teleconference.
The downside of the dollar is it makes American assets cheap and it's much more possible for offshore companies and so on to be able to buy American assets. So at a certain point I don't think it's an overall positive for the economy for the dollar to get past a certain point.
The dollar is currently down about six percent this year versus a basket of major currencies <.DXY> that is widely used to gauge its overall strength.
Its slide presents a broad range of risks, including inflation since the United States is a massive importer, especially of oil but also a broad range of other products and inputs necessary for industry.
In the non-manufacturing sector when you look at the valuation of the dollar there is not as much exporting being done, said Anthony Nieves, chairman of the ISM non-manufacturing survey committee.
Where the negative impact is, there is a lot of import going on and so the cost of products and services coming in (leads to) an increase in expenses.
The ISM report said manufacturing purchasers are predicting strength in both exports and imports in 2010.
They also expect the U.S. dollar to weaken on average against the currencies of major trading partners. ISM added.
In its report, the ISM mentioned high energy costs among their top five concerns, in addition to the weak economy, healthcare and benefits costs, the credit crisis and taxes.
Elsewhere, the report said capital expenditures in manufacturing are expected to decrease by 4 percent next year from a 7.8 percent decrease in 2009, ISM said in a statement.
Manufacturers expect employment in the factory sector will increase by 1.5 percent, while labor and benefits costs are expected to increase an average of 1.4 percent in next year.
The ISM manufacturing panel is forecasting the prices they pay will increase 0.2 percent during the first four months of 2010 and will rise a further 2.4 percent during the balance of 2010, with an overall increase for 2010 of 2.6 percent.
On the services side, employment is expected to continue to contract in 2010 by 0.6 percent.
Respondents in the services industries expect the prices they pay for materials and services will increase by 1.1 percent during 2010, while they are forecasting overall labor and benefit costs will remain unchanged for 2010, ISM said.
(Reporting by Chris Reese and Burton Frierson.)