ISM Semiannual report points to growth for both non-manufacturing and manufacturing through 2017

Sticking to major themes echoed in its previous edition in December, the May edition of the Institute for Supply Management’s (ISM) Spring 2017 Semiannual Economic Forecast is pointing to continued growth in both the manufacturing and non-manufacturing sectors.

Data for this report is based on feedback from U.S.-based purchasing and supply chain executives in manufacturing and non-manufacturing sectors.

For manufacturing, ISM data pegs revenue rising 4.4% in 2017, which is slightly below December’s 4.6% estimate, with 64% of manufacturing respondents calling for revenues to be up 8.5% annually, 12% calling for a 9.6% decline, and 24% expecting no change.

And 17 of the 20 reporting manufacturing sectors anticipate 2017 to be a growth year. Capital expenditures are expected to rise 5.2%, well ahead of December’s 0.2% prediction, and capacity utilization is at 82.5%, ahead of December’s 81.9%.

Manufacturing production capacity is expected to rise 3.3% in 2017, which tops the previous report’s estimate of 2.5%. Prices paid by ISM manufacturing respondents were up 2.2% through the first four months of 2017, exceeding December’s estimate of 0.9%. On the employment side, the report expects a 1.3% gain by the end of 2017, above December’s 0.6% rise.

Brad Holcomb, chair of the ISM’s Manufacturing Business Survey Committee said the report’s findings are consistent with the growth manufacturing has seen overall through the first four months of 2017.

“Every month to day of 2017 has been better than the same month in 2016, and things are on a pretty good roll,” he said. “This forecast reflects that reality in the form of increases in revenues, capital expenditures, pricing, employment, and capacity utilization should things continue to head in this direction. There is still room for the sector to grow.”

On the non-manufacturing side, the report is calling for revenues to increase 4.1% through the end of 2017, down slightly from December’s 4.7% projection, with 50 percent of non-manufacturing respondents expecting revenue to be up 10.6% or more, and 17 of the 20 sectors in the report expecting gains, up from 14 in in the previous report.

Non-manufacturing capital expenditures are expected to rise 5.2%, well ahead of a projected December 0.2% decline, with capacity utilization at 86.9%, topping Decembers 85.2%.

Non-manufacturing production capacity, or the capacity to produce products or provide services in this sector, is expected to increase 2.7%, ahead of December’s 1.9%, with employment looking at a 2.2% gain, beating December’s 1.9% estimate.

Prices paid for non-manufacturing services are looking at an expected 1.5% gain, slightly below a 1.8% projection made in December.
Like Holcomb on the manufacturing side, Tony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee, was upbeat about the report’s numbers.

“The operating rate coming in at 86.9 is very efficient and shows that companies are operating at a very high level as the year has moved on,” he explained. “That goes hand-in-hand with other news coming out of the non-manufacturing sector like the NMI coming in very strong each month in 2017. Dips that have occurred have been very short-lived when looking at the 12-month NMI average of 55.6 (a reading of 50 or higher indicates growth is occurring).”

And the expected gains in production capacity and capital expenditures both are well positioned for growth through the rest of the year, with the capital expenditure figure serving as a strong sign that companies are confident about the future, he said.