Purchasing managers for the United States’ manufacturing industries are expecting growth through the remainder of 2018, but potential for some supply chain disruptions exist as well.
In the Institute For Supply Management’s Semiannual Economic Forecast, 62% of manufacturing respondents expect their revenue in 2018 will be 11.6% higher than in 2017. Overall, the industry forecasts an average of 6.6% revenue growth for the year.
Most of the metrics tracked by the ISM are up and to the right for 2018: operating rates are at 85.8%, expected capital expenditures will increase 10.1%, and employment is forecast to grow 1.8%. However, prices for raw materials are expected to increase by 5% and tariffs remain a concern for U.S. manufacturers.
“With 15 of the 18 manufacturing sector industries predicting revenue growth in 2018, when compared to 2017, U.S. manufacturing continues to move in a positive direction,” said Timothy R. Fiore, chair of the ISM’s Manufacturing Business Survey Committee. “However, finding and onboarding qualified labor and being able to pass on raw material price increases will ultimately define manufacturing revenues and profitability.”
First, the good news: a 10.1% increase in capital expenditures is “notably higher” than the 2.7% increase predicted in December 2017, according to the ISM. Thirty-four percent of manufacturing respondents predict they’ll increase capital expenditures; 52% said they’ll spend the same as in 2017. Among those that expect to increase capex, the general business outlook and recent tax reform are cited as the reasons.
Overall, expectations for production capacity nearly doubled from 2017’s prediction: capacity is expected to increase 4.9% in 2018, reflecting continuing strength in the manufacturing sector. Of the 15 manufacturing industries that expect to increase capacity, segments of the electronics industry ranked 11th and 15th.
However, increased prices also outstripped 2017’s forecast. In December 2017, respondents predicted an increase of 1.3% in prices paid during the first four months of 2018; they now report prices actually increased by 4.8%. Seventy percent of respondents expect prices to increase during the remainder of 2018 by 7.3%, reported the ISM. Of the 18 industries that expect price increases, electronics companies ranked toward the middle of the list.
If or when the U.S. finally imposes tariffs on steel and aluminum, almost 74% of manufactures expect the price of the goods they manufacture to increase. In turn, these manufacturers expect to pass on price increases of an average 5.4% to their customers. Nearly 58% of manufacturers expect tariffs to disrupt their supply chains while 42.5% expects they will not.
Manufacturers also expect to be paying more for labor. A full 77.9% of respondents had difficulty hiring workers to fill open positions, the ISM found. More than 53% raised wages. Only 47.9% offered additional training for new hires while 52.1% did not.
In summary, the ISM’s semiannual manufacturing forecast reports:
- Operating rate is currently at 85.8% of normal capacity.
- Production capacity is expected to increase 4.9% in 2018.
- Capital expenditures are expected to increase 10.1% in 2018.
- Prices paid increased 4.8% through the end of April 2018.
- Prices of raw materials are expected to increase a total of 5.0% for all of 2018, indicating an expected increase of 0.2% in prices for the remainder of the year.
- Manufacturing employment is expected to increase by 1.8% in 2018.
- Manufacturing revenue is expected to increase 6.6% in 2018.
- Overall, manufacturing is expected to exhibit a positive growth trend in 2018.
The 18 industries surveyed by the ISM include computer and electronic products; electrical equipment, appliances and components; transportation equipment; food, beverage and tobacco products; textile mills; apparel, leather and allied products; wood products; paper products; printing and related support activities; petroleum and coal products; chemical products; plastics and rubber products; nonmetallic mineral products; primary metals; fabricated metal products; machinery; furniture and related products; and miscellaneous manufacturing.