ISM report points to expected manufacturing and non-manufacturing growth in 2020

Growth for both the manufacturing and non-manufacturing sectors, in 2020, is expected to remain intact, according to the Institute for Supply Management’s (ISM) Semiannual Economic Forecast, which was issued today.

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 is estimating a 4.8% annual increase in 2020 revenue, which is up from the 1.9% increase that was pegged for 2019 over 2018. What’s more, 58.1% of manufacturing respondents expected 2020 revenues to be higher than 2019. And revenue growth in 2020 is expected to see annual gains in all 18 manufacturing industries ISM tracks.

Manufacturing capital expenses (capex) are expected to decrease 2.1% in 2020 compared to 2019, following annual growth of 6.4% from 2018 to 2019.  The 6.4% annual gain in 2019 topped a 5.9% projection issued in the May edition of this report. What’s more 34% respondents that reported increased capital expenditures in 2019 noted an average increase of 36.8 percent, while the 21% saying their capital spending was reduced reported an average decrease of 28.3, and 45% of respondents said they spent the same in 2019 as in 2018.

Manufacturing capacity utilization, or operating rate, which came in at 83.2, is 1% below May’s 84.2 reading, and production capacity is expected to head up 3.3% in 2020, down from May’s 4.5% reading. Raw materials prices finished 2019 up 0.7%, with 2020 prices projected to rise 1.1%.

“The 4.8% for manufacturing revenue was a bit of a surprise, in that it is a really strong number,” said Tim Fiore, chair of the ISM’s Manufacturing Business Survey Committee. “The outlook for 2020 [with 59.1% or respondents thinking 2020 will be better than 2019] is still really good, even though it is off of 2019’s 65.8. And the 83.7 operating rate remains good, as does the expected gain for production capacity, which is also a positive.”

Fiore added that while the capex outlook for 2020 is down compared to 2019, it is worth noting 2019 capex was up 6.4% annually, which is very strong, and makes for a good multi-year run of capex growth, when viewed from that perspective.

“The telling story is employment, labor costs, and prices, with prices well below expected annual gains of 2%, employment seeing minimal growth and expected to close 2019 at 0.6%, and labor costs at less than 1% compared to 2019’s 2.5%,” he said. “This tells the story that labor pressures are going to ease, as we have seen in recent months with the PMI numbers.”

On the non-manufacturing side, the report expects, 2020 revenue to see a 3.4% annual gain, which comes in 1% shy of the 4.4% 2019 revenue increase over 2018, with 17 of the 18 non-manufacturing sectors tracked by ISM expecting 2020 revenue gains.

Non-manufacturing production capacity, or the capacity to produce products or provide services in this sector, headed up 2.5% in 2019, with the report calling for a 3.6% increase in 2020. Non-manufacturing capex is expected to see a 1.3% gain in 2020, down from a 2% annual gain from 2018 to 2019. Prices paid for non-manufacturing are expected to increase 1.9% in 2020, ahead of 2019’s 1.6% rate.   

Non-manufacturing capacity utilization, or the operating rate, at 86% is down compared to May’s 89% reading and December 2018s 88.4%. And non-manufacturing employment is expected to increase 1.2% in 2020, with growth in the sector up 0.2% going back to May.

“This data shows some carryover we have seen from the growth from late 2018 into the first half of 2019, showing some projected declines, but still growth, for non-manufacturing revenue and capex,” said Tony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. “This report is a little softer than what we have seen forecasted in the past, but growth is expected to carry on, even though the sector has felt some of the trade wars impact in recent months, as well as hiring difficulties and wage pressure issues.”