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

News Release (For Immediate Release) May 5, 2016

Current Business Trends By Brian G. Long, Ph.D., C.P.M. Director, Supply Chain Management Research Grand Valley State University (269) 323-2359 Still Rising For this month’s report, it is gratifying to see theWest Michigan economy continue to grow, eventhough the pace remains subdued. The data andcomments collected in the last two weeks of Aprilremainoptimistic,althoughthereremainsascatteringoffirmsthatareeitherflatordeclining.NEWORDERS,ourindexofbusinessimprovement,remainedpositivebutbacktrackedto+7,downfrom+15.Bycontrast,thePRODUCTIONindexrosetoathreemonthhighof+20,up from +16. Activity in the purchasing offices, theindexofPURCHASES,rosesharplyto+14,upfrom+3.For April, it can be noted that the West Michiganeconomyapproximatelyparalleledtheperformanceofthenationaleconomyaswellas theoverallMichiganeconomy.Reviewing our local industrial groups, near-recordautosalesarestillkeepingthelocalautopartssuppliersoperatingatfullcapacity,eventhoughacoupleoffirmsare reporting a slight hesitation. The office furniturebusiness remains stable, and the spring season hasresulted in significant improvements for some firms.Just like last month, our industrial distributors weregenerallypositive.Capitalequipmentfirmscontinuetoreportwidelymixedresults.ForApril2016, thebusinesssentimentof the localsurveycontinuestobequitepositive.Theindexwhichasks about the perception of the next three to sixmonths, the SHORT TERM BUSINESS OUTLOOK,remainedrelativelystableat+34,downmodestlyfrom+37.Fortheoutlookforthenextthreetofiveyears,theLONGTERMBUSINESSOUTLOOK,theAprilindexroseto+49,upfrom+44.Giventhepessimisticnumberswereported six months ago, the current mood is muchmoreconfident.Good news comes from Mike Dunlap’s quarterlysurvey of the office furniture industry. Most of thestatisticscamein justafewpointsbelowtheall-timerecordssetabouttwelveyearsago.Mr.Dunlapfurthernoted:

“The industry continues to grow steadily.Obviouslythesmallertomid-sizedcompaniesare growing faster than the Top Five. TheOverall Index isstrongand isdefinitelyabovethe54.79 Survey average. 2015was thebestyearwehadseeninwelloveradecade,andweremain confident that 2016 will be evenbetter!”

The national report from the Institute for SupplyManagement, our parent organization, reported asmall but significant improvement for April. NEWORDERS,ISM’Sindexofbusinessimprovement,roseto+21from+20.ThePRODUCTIONindexedgedhigherto+22from+17.TheEMPLOYMENTindex,whichhas

been negative for the past six months, returned topositive at +5, up from -4. However, because ofstatistical weighting, ISM’s overall index remainedpositivebutretreatedto50.8from51.8.By contrast, the U.S. survey conducted byMarkit.com, the international economics consultingfirm, remainsmuchmorecautious.DespiteamodestincreaseinNEWORDERS,therateofexpansionwastheweakest since December 2015. The final U.S.manufacturingPMIcameinat50.8,downfrom51.5inMarch and only slightly above the 50.0 no-changethreshold.Thesurveyauthoropined:

“TheAprilPMIdatasuggestthere’snoendinsighttothecurrentdownturninmanufacturingactivity. The survey indicates that factoryoutputsaredroppingatanannualizedrateofapproximately3%,andfactoryheadcountsarebeing culled at a rate of around 10,000 permonth. Rather than reviving after adisappointingweakfirstquarter,thedataflowtherefore appears to be worsening in thesecond quarter, raising the question marksoverwhetherGDPgrowthwillimproveonthenear-stallingseen inthefirstthreemonthsoftheyear.”

The world economy continues to show signs offlattening. According to the J.P. Morgan GlobalManufacturingsurveyof31nationsreleasedonMay2,JPM’sindexofNEWORDERSedgedlowerto50.4,downfrom51.4.ThePRODUCTIONindexeasedto50.4from51.3.JPM’sGlobalPurchasingManager’sIndexedgedlower to 50.1, painfully near thebreak-evenpoint of50.0.TheEurozonePMIpostedaverymodestincreaseto 51.7, up from 51.6. The survey author and chiefeconomistforMarkitremainscautious:

“Thegrowthrateoftheglobalmanufacturingsectorgroundtoanearstandstillatthestartofthesecondquarter.TherateofexpansionforPRODUCTION and NEW ORDERS deceleratedback towards the broadly stagnant outcomesregistered in February. Conditions remainedmuted in many domestic markets, whileinternational trade flows continued todeteriorate.The levelofnewexportbusinessfell for the third straight month, and to thegreatestextent,sinceSeptemberoflastyear.”

AutosalesforAprilpostedagainof3.5%,andtheSAAR (seasonally adjusted annual rate) rose to 17.42million, slightly below the 17.5 million forecast byanalysts,butupsharplyfromtheMarchsalespaceof16.56millionand16.77millioninApril2015.Thestrongsales are attributed to lower gasoline prices, near-

record cash incentives, favorable finance offers,pockets of pent-up demand, and a reasonably stablenationaleconomy.Salerose3.6%atFord,5.6%atFiat-Chrysler,14.4%atHonda,3.8%atToyota,and12.8%atNissan.GeneralMotorslost3.5%,andVolkswagenlost9.7%becauseofcontinuedfalloutfromtheemissionsscandal.For the unemployment statistics, most WestMichiganreportingunitsareatleastafullpercentagepoint better off than a year ago. The Kent Countyunemployment number for March came in at 3.3%,Ottaway County at 3.2%, and Kalamazoo County at3.7%.Theemploymentpictureisthebest ithasbeensince the recovery began seven years ago, althoughsomesegmentsoftheworkforcehavenotparticipatedin the recovery. For our local survey, the index ofEMPLOYMENT remains positive at +11, slightly lowerthan the +14 reported for March. As long as theEMPLOYMENT index remains positive, we shouldexpecttoseesomemodest improvementinour localunemploymentrates. However, it isworthrepeatingthattheindustrialsectoralonecannotbecountedontounilaterallydrivetheunemploymentrateslower.Although many factors fostered the GreatDepression 85 years ago, the trade war ignited bySmoot-Hawley tariffs is often cited as a significantfactor.TheEconomistmagazine,aBritishpublication,worriesthatanewtradewarcouldbespawnedbythepoliticalrhetoricofthe2016presidentialelection.Theeditors complain that ALL of the top presidentialcandidates in BOTH parties favor new traderestrictions, presumably to “protect American jobs.”This language harkens back to Smoot-Hawley, andraises theprospects of potential tradewars breakingout with some of our major trading partners. As ofMarch1,theDepartmentofCommerceimposedtariffsof 266% on some Chinese steel imports. So far, theChinese have not responded. Based on past history,somekindofreposeisalmostinevitable.Forallof2015andmostof2016,ourindexofPRICEShas been sharply negative. However, for March and

April of this year, the indexhas returned to positive,risingto+14and+6respectfully.Althoughmostofthebasiccommoditiespricesarenolongerfalling,thebigproblem is that the recent imposition of tariffs onChinesesteelhasresultedinalmosteverysize,shape,and grade of steel going up in price. For the officefurniture and automotive industry, the lower steelprices were good for the bottom lines of the majorfirmsaswellastheirpartsproducers.However,highersteelpricesareprobablyheretostay,atleastaslongastheworldeconomystaysoutoftrouble.Comingontheheelsofatepid1.4%growthrateforthefourthquarterof2015,itgoeswithoutsayingthatthe first quarter of 2016 GDP release from theCommerce Department was a disappointment.Although the initial report of 0.5% growth is“preliminary,” it still portends that the best we canhopeforismoreslowgrowthforthenextfewmonths.Insummary,wecontinuetobalancethegoodnewswith the bad. Subject to the obvious limitations, ourlocal unemployment rates have returned to near-fullemployment. The national ISM index remainsmarginally positive, and our local statistics haveresumed the pattern of slow growth. However,numerous countries around the world have slid intorecession,andEuropeangrowth,whilestillpositive,isdisappointing in view of the central bank’saccommodativemonetarypolicy.ThePMIfromChinaremains negative, but since the government newsagencyseizedthesurveyfromHSBCaboutfourmonthsago,wearenotsure that the realnumbersmightbeeven weaker than reported. A recent Wall StreetJournal article now questions the efficacy of theeconomic data coming from India. Right now, itappearsthattheU.S.economyisgoingsideways,andthattheslowgrowthwehaveseenforthelastsevenyearsmaygetevenslower.Locally,aslongasautosalesandofficefurnituresalesremainstrong,WestMichiganshouldcontinuetooutpacetheoverallU.S.economy,butthereisnoprospectforfastergrowth.

APRILCOMMENTSFROMSURVEYPARTICIPANTS

“NewOrdersaredown,butquotingactivityisstillvery

strong.”“Ouremploymentdownduetomanagementheadcount

mandates.TheFinishedGoodsinventoryisdownduetocashflowpressurestoreduceinventory.”

“NewOrdersarealittlesofterbecauseoneofourbigcustomersisslowingactivitytoduetosupplyinterruptionsfromtheearthquakeinJapan.”

“Afteraroughfirstquarter,secondquartersalesarestronger,andprojectedtobestableforrestoftheyear.”

“Ithinksteelshortagesarearoundcorner.”“NewOrdersareonpacetobedowncomparedtolast

April.”“Businesshasbeensoftforthelastfewmonths,andit

appearsthetrendwillcontinue.Electionyearblues???”“Therearesomeupwardtrendsinbasemetalprices

overthepastmonth.Nickelisup10%sincethefirstweekofApril.”

“Steelpricesarereboundingrapidlyduetocommercedepartmentdutiesbeingsetinexcessof200%onChinesesteel.”

“Springbreakslowdown???ThemonthofMarchwasdisappointingcomparedtoJanuaryandFebruary.Ourcustomerbasehasallreportedasofteningofbusiness.”

“Businessseemstobepickingup.”“I’mrevisingmyusualLongerTermBusinessOutlook

from“Up”to“Same.”Ourbusinesslooksflatfornextfewyearsuntiltheenergybusinesspicksupagain.”

“MoreaggressiveregulationenforcementbytheFDAisresultinginlesscompetitionforgenericdrugs.Inmanycases,thecosttoremediatedeficienciesisgreaterthanthelongtermprofitpotential,andsomechosetodiscontinueproduction.Thistrendwillultimatelyresultinhigherpricesforconsumers.”

“Almostacrosstheboard,commoditieshavereversedtheirdownwardcourseandareslowlyrebounding.Reason:Theweakerdollarandmorerestrictivetradepoliciesasweheadintoelections.”

“Businessremainsstronginautomotive.”“Weareinamomentarydipinourbusinesscycle,but

expectthingstopickupshortly.”

“Wearesensingsomesoftnessincustomerbase.It’s

notmajor,soitcouldbejustnormalfluctuations.”“Themetalindustryisstartingtomakeamoveon

pricing.Thequestionishowaggressivewillthesteelmillsbe?”“Wejustheldanopenhousetodisplaymachines,and

hadover40companiesvisit.Mostcompaniesaretellingustheyarequitebusyandplanningtoaddequipmentinthenextfewmonths.”

“Wehaveverysteadybusiness.Itlookslikeanothergoodyear.”

“Whilelead-timesareshorter,supplierscannothitthedockdaterequestedbasedonthelead-timegiven.”

“Eventhoughouroverallwintermaintenancebudgetwasdownaround35%weusedthatsavingsforothermaintenanceactivitiessuchasgradingroads,fixingdrainageproblems,andtrimmingtrees.”

“Rightnow,theeconomyisinthesweetspotinmyhumbleopinion.Ourfirstquarterearningswillbebetterthananticipated.Oursecondquarterearningswillbemoreperilousespeciallyincompaniesthatarecommodityintensiveinrawmaterials.”

“TheslowdownthatstartedinDecemberisstilluponus.Therearenoindicatorspointingtoanincreaseanytimesoon,andnewprojectsarebeingputonholdbyourcustomers,particularlyinmachinetools.Medicalseemstobedoingwell.”

“Ourbusinessisgrowing!Wearegettinglotsofnewfuturebusiness!”

“Weseeaslightsoftening,butnotextreme.Weareexpectingareboundshortly.”

“WearestartingtoseeaslightslowdownforAprilandMay.”

“Wearestillalittledownonincomingneworders,butthingsareabouttobreakloose.”

“Wehavelotsofautomotivequotingaction,butcontrollinggrowthwillbekey.”

“Ourbusinesslevelincreasesarebecauseofseasonalitydrivers.”

“Weareseeinglongerlead-timesandpush-outswiththecoldrolledsteelmills.”

April2016SurveyStatisticsApr. Mar. Feb. 25 Year

UP SAME DOWN N/A Index Index Index Average Sales (New Orders) 30% 46% 23% 1% + 7 +15 +14 +14 Production 27% 50% 7% 6% +20 +16 +12 +14 Employment 17% 77% 6% +11 +14 +17 + 8 Purchases 29% 56% 15% +14 + 3 - 3 + 7 Prices Paid (major commod.) 12% 79% 6% 3% + 6 +11 -20 +15 Lead Times (from suppliers) 14% 78% 8% + 6 + 4 + 2 +11 Purchased Materials Inv. 23% 53% 18% 6% + 5 +10 + 6 - 4 (Raw materials & supplies) Finished Goods Inventory 20% 61% 12% 7% + 8 + 4 +15 - 8 Short Term Business Outlook 43% 48% 9% +34 +37 +19 - (Next 3-6 months) Long Term Business Outlook 49% 48% 3% +49 +44 +40 - (Next 3-5 years)

Itemsinshortsupply:Stainlesssteel,productionworkers,goodlabor,employeesatalllevels,Ultemresin,polysulfonematerial,trucking.PricesontheUPside:Polypropylene,Resins,PVCresins,steel,hotrolledsteel,stainlesssteel,carbonsteel,steelcomponents,wirerod,scrapsteel,StyreneEthyleneButyleneStyrene(SEBS),DiisodecylPhthalate(DIDP-E),butadiene,laborrates.PricesontheDOWNside:Methylethylketone,alcohol,computers,monitors,steelforgings,ironcastings,steel*,paraffinicoil,bituminousasphaltpaving,asphalt,emulsionproducts,chlorides,aluminum.*TheseitemsarereportedasbothupANDdowninprice.

LatestUnemploymentReports(Exceptasnoted,dataareNOTseasonallyadjusted)

Mar.Mar.Aug.20Year201620152009LowStateofMichigan(Adj.)4.8%5.8%14.6%3.2%StateofMichigan(Unadj.)5.1%5.9%14.1%2.9%KentCounty 3.3%4.0%11.9%2.1%KalamazooCounty 3.7%4.5%11.1%2.1%CalhounCounty4.6%5.4%12.8%2.7%OttawaCounty 3.2%3.8%13.3%1.8%BarryCounty 4.0%4.8%10.9%2.2%KalamazooCity4.6%5.6%15.2%3.2%PortageCity3.4%4.1%8.7%1.3%GrandRapidsCity4.3%5.3%16.1%3.0%KentwoodCity3.1%3.7%10.7%1.4%PlainfieldTwp.2.5%3.0%8.0%1.4%U.S.OfficialRate(Mar.)5.0%5.5%9.6%3.8%U.S.RateUnadjusted5.1%5.6%9.6%3.6%U.S.U-6Rate**9.8%10.9%16.7%8.0%

**U-6forMichigan=11.4%forallof2015

IndexofNewOrders:WestMichigan

Asthenameimplies,thisindexmeasuresnewbusinesscomingintothefirm,andsignifiesbusinessimprovementorbusinessdecline.Whenthisindexispositiveforanextendedperiodoftime,itimpliesthatthefirmororganizationwillsoonneedtopurchasemorerawmaterialsandservices,hiremorepeople,orpossiblyexpandfacilities.Sincenewordersareoftenreceivedweeksorevenmonthsbeforeanymoneyisactuallypaid,thisindexisourbestviewofthefuture.LatestReport +7forthemonthofApril,2016PreviousMonth+15forthemonthofMarch,2016

OneYearAgo+37forthemonthofApril,2015

RecordLow -57forthemonthofDecember,2008

RecordHigh+55forthemonthofSeptember,1994

FirstRecovery+3inAprilof2009andforward

ISM-WestMichiganIndexofNewOrders1988-2016

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ISM-WestMichiganIndexofNewOrders:2005-2016Only

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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-WESTMICHIGANEMPLOYMENTINDEX2005-2016

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