Spring 2014 ISM Semiannual Report points to strong manufacturing and non-manufacturing momentum
May 07, 2014
The outlook for growth in both the manufacturing and non-manufacturing sectors for the remainder of 2014 can be described as very good. That is the general thesis of the Spring 2014 Semiannual Economic Forecast issued by the Institute for Supply Management (ISM) this week.
The spring report is the companion to the one published by ISM in December each year and is based on feedback from U.S.-based purchasing and supply chain executives in manufacturing and non-manufacturing sectors.
For manufacturing, the ISM said that revenue is expected to increase 5.3 percent this year (up from 4.4 percent in December), and capital expenditures are pegged at 10.3 percent (up from 8.0 percent), and capacity utilization is now at 82.3 percent (up from 80.3 percent).
Manufacturing production capacity is expected to rise 4.8 percent, according to ISM, down from 5.2 percent reported in December. Even with the sequential decline, ISM said that this figure represents continuing strength in the sector, with 44 percent of respondents expecting an average capacity increase of 12.7 percent, 8 percent calling for decreases averaging 11 percent, and 48 percent not expecting any change.
The outlook for manufacturing prices was fairly flat, with a 1.3 percent increase, up from 1.2 percent in December. And for manufacturing employment, ISM said that its respondents expect it to be up 1.5 percent through year-end, with 38 percent calling for it to be at 6.6 percent or higher.
The projected growth in manufacturing did not come as a surprise to Brad Holcomb, chair of the ISM Manufacturing Survey Business Committee, as he explained that the PMI (the main index used to measure manufacturing growth) has grown each month year-to-date in 2014.
“There is a good amount of optimism and enthusiasm in manufacturing, and that is supported by how all 18 of our industries are reporting growth in this forecast,” he said.
The 1.5 percent employment gain for manufacturing is pretty steady and even from where 2013 finished and shows an appetite for replacing positions and filling new positions, although it won’t be extensive initially, said Holcomb.
On the non-manufacturing side, revenue is expected to rise 2.7 percent through the rest of the year (down from 3.6 in December), with capital expenditures predicted to head up 10.8 percent (up from 4.6 percent in December), and capacity utilization at 86.3 percent, matching the December outlook.
Non-manufacturing production capacity, or the capacity to produce products or provide services in this sector, is expected to head up 3.1 percent in 2014 compared to December’s prediction of 1.9 percent. Prices for the first four months of 2014 were on average 1.6 percent higher than at the end of 2013 and 0.2 percent less than December’s 1.8 percent prediction. For 2014, ISM respondents expect prices to rise a cumulative 2.2 percent, reflecting a bit of a lack of pricing power at the moment for non-manufacturing.
For employment, non-manufacturing respondents expect 2014 employment to head up 1.4 percent, with 36 percent expecting a 6.7 percent gain, 12 percent predicting an 8.2 percent dip, and 52 percent saying it will not change.
“Looking at non-manufacturing capacity and operations, companies are definitely operating efficiently and at a high rate,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee. “While the revenue projection is not as strong as it is for manufacturing, 17 of the 18 non-manufacturing industries are reporting growth in revenue. The projected gains in capital expenditures bodes well and shows more confidence in loosening the purse strings for the respective sectors and is a positive for down the road.”
Even though a more robust revenue figure for non-manufacturing would be welcomed, Nieves said that the sector remains on a path of steady, incremental growth that has been intact for some time.
Subscribe to Logistics Management magazine
entire logistics operation. Start your FREE subscription today!