In recent months, economic data and economists’ predictions depicted a steadily strengthening economy, and one of the most bullish of these forecasts is a recent report on manufacturing.
The survey of purchasing and supply managers conducted by the Institute for Supply Management reveals that they foresee manufacturing growth of 4.6% as well as nonmanufacturing growth of 4.1% in 2017.
“On the whole we’re looking at a positive year,” comments ISM spokesman Bradley Holcomb.
Combining predictions of no significant upswing in costs with the expected jump in revenue means “profit margins will open up and make our companies even healthier as we go forward,” he adds.
The manufacturing executives surveyed are optimistic about their overall business prospects for the first half of 2017, and slightly more optimistic about the second half of 2017, Holcomb points out.
The 16 manufacturing industries are printing and related support activities; textile mills; fabricated metal products; furniture and related products; electrical equipment, appliances and components; computer and electronic products; and transportation equipment.
They are followed by miscellaneous manufacturing; petroleum and coal products; chemical products; primary metals; paper products; food, beverage and tobacco products; nonmetallic mineral products; plastics and rubber products; and machinery.
Among the manufacturing purchasers asked about their inventory projections, 15% said they anticipate increasing their purchased inventory-to-sales ratio during 2017. An additional 19% expect their ratio to drop, and 66% said they see no change.
The non-manufacturing segment includes, in order of ranking: information; professional, scientific and technical services; construction; arts, entertainment and recreation; agriculture, forestry, hunting and fishing; management of companies and support services; retail trade; wholesale trade; mining; utilities companies; accommodation and food services; finance and insurance; and health care and social assistance.
Of the non-manufacturing purchasers who responded to the poll, 10% said they anticipate increasing their purchased inventory-to-sales ratio during 2017. An additional 10% expect their ratio to drop, and 80% foresee no change.
An April 2016 ISM survey predicted a 0.6% decrease in prices paid for raw materials in 2016. The more recent manufacturing survey now shows price decreases averaged 0.4%.
Of the 33% who say their raw materials prices are higher now than they were at the end of 2015 report an average increase of 5.3%. On the other hand, the 44% who report lower prices say they averaged a 4.9% decrease. The remaining 23% indicate no change between the end of 2015 and end of 2016.
Manufacturing executives expect higher overall labor and benefit costs for 2017, with 68% forecasting increased labor and benefit costs. They expect those to grow by an average of 3.9% for all of 2017. The 2% who forecast lower costs see them decreasing by an average of 5.8%.
Non-manufacturing executives foresee a 2.5% increase in labor and benefit costs in 2017. This includes 68% who expect such costs to increase by an average of 4.4%. Another 7% see labor and benefit costs shrink an average of 5.5%, and 27% believe they will remain stable.
“Non-manufacturing supply managers’ report operating at 85.2% of their normal capacity, lower than the 86.5% reported in April 2016, and they were optimistic about continued growth in the first half of 2017,” ISM says.
ISM members also report that manufacturing employment decreased 0.2% in 2016 relative to 2015, and forecast that employment will increase by 0.6%, on average, for the full year of 2017.