ISM semiannual report paints a positive picture for 2014 growth

As has been the case in its respective monthly manufacturing and non-manufacturing reports on business, continued growth remains in the cards for 2014, according to the December 2013 Semiannual Economic Forecast released this week by the Institute for Supply Management (ISM).

This report, which is also released in April each year, is based on feedback from U.S.-based purchasing and supply chain executives, manufacturing and non-manufacturing sectors.

On the manufacturing side, the report noted that manufacturing revenue is expected to increase 4.4 percent in 2014, with capital expenditures slated to rise 8.0 percent, and capacity utilization at 80.3 percent.

Some other manufacturing data points cited in the report, include: inventories rising 0.9 percent to support planned 2014 sales levels; employment is pegged to increase by 2.4 percent, with labor and benefit costs going up by an average of 2.3 percent; and raw materials prices are expected to head up 1.2 percent through April and then another 0.4 percent throughout the rest of the year.

Looking ahead to 2014, the report laid out the biggest concerns ISM member respondents’ businesses are facing, which include domestic sales growth (32 percent), international sales growth (18 percent), healthcare reform uncertainty (14.6 percent), and ongoing government shutdown and debt ceiling concerns (13.5 percent), among others.

And in a special question focused on supply chain improvements in 2014, the report said that 69 percent of respondents planned to take various steps to improve supply chain management processes, including things like strategic sourcing/supply base rationalization, process and information systems improvements, supplier relationship management, inventory management and control, and improved cross-functional planning and scheduling.

Brad Holcomb, chair of the ISM Manufacturing Survey Business Committee, said that manufacturing has been on a positive trend through the second half of 2013, with each month increasing over the previous month going back six months, with the November PMI (the main index used to measure manufacturing growth) at 57.3, which is now the new high for the PMI in 2013, topping October’s 56.4 and is the highest PMI level since April 2011’s 60.4.

“Our panel is forecasting a continuation of that growth trend into 2014, with a good first half and an even better second half,” he said.

When asked about inventory management in manufacturing, Holcomb said that over the last year it has been a key focus for manufacturing.

“It is an opportunity to control costs but not at the expense of being prepared for filling new orders at the 50 percent mark give or take,” he said. “Manufacturers have been doing a good job with this, and I see pretty much the same going forward

For non-manufacturing, the report expects revenue to increase 3.6 percent and capital expenditures to head up 4.6 percent, with capacity utilization at 86.3 percent.

Other key data points for non-manufacturing included prices for materials and services are expected to increase by 1.9 percent due largely to petroleum products, with overall labor and benefit costs heading up 2.6 percent next year. Profit margins, which are said to have decreased in the second and third quarters of 2013, are now expected to increase between the present time and next April.

The primary business concerns for non-manufacturing respondents included: domestic sales growth (31.8 percent), government regulations (18.9 percent), healthcare costs (14.9 percent), and healthcare reform uncertainty (14.9 percent), among others.

And for the special supply chain question, non-manufacturing respondents noted that technology and process improvement was the most commonly cited means of improving supply chains, with other areas including strategic cost and contract management, strategic sourcing, supplier relationship management, and professional development.

Like his manufacturing counterpart Holcomb, Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, said that the continuation of growth patterns in the non-manufacturing sector were evident, with the second half of 2013 performing slightly better than the first half.

“Future growth is about expectations and capacity,” said Nieves. “The way things look now there is a fair amount of optimism in non-manufacturing for 2014.”