ISM semiannual report calls for growth in manufacturing and non-manufacturing sectors in 2016

Despite what can be viewed as continually fluctuating economic conditions, the December 2015 Semiannual Economic Forecast issued by the Institute for Supply Management (ISM) presented an optimistic outlook for the the manufacturing and non-manufacturing sectors in 2016.

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

For manufacturing, the report said revenue headed up 1.4 percent in 2015 (compared to 3.5 percent in May), with a 4.1 percent uptick pegged for 2016, with 63 percent of respondents expecting higher revenues. Capital expenditures are pegged at 1.0 percent for 2016, and 8.3 percent for 2015 (compared to 3.1 percent in May), and capacity utilization currently stands at 81.6 percent, which is up from April’s 79.5 percent and down from the 83.7 percent recorded in December 2014, with ten of the ISM’s 16 reporting manufacturing sectors currently operating above the average rate of 81.6 percent. 85 percent of manufacturing respondents think 2016 will be the same or better than 2015.

Manufacturing production capacity headed up 1.9 percent in 2015, lagging the expected 3.4 percent gain cited in the May report and is expected to be up 2.8 percent in 2016.

Prices paid for raw materials by ISM manufacturing respondents are expected to rise 0.5 percent in 2016, with a 0.1 percent gain over the first four months of the year followed by a 0.4 percent gain over the balance of the year. On the employment side, ISM said a 0.2 percent gain is expected in 2016, coupled with labor and benefit costs expected to rise by an average of 1.7 percent.

“We ended 2015 much lower than we anticipated much lower than we anticipated at this time last year with a 1.4 percent revenue increase in 2015 over 2014,” Brad Holcomb, chair of the ISM Manufacturing Survey Business Committee, said in an interview. “But we are calling for that to head up in 2016 by 4.1 percent, so relative to where we are coming off of last year, it is almost a three-fold increase. And the cost of raw materials is going to be [much] higher if our predictions hold, along with labor and benefits, so there is opportunity in the middle to increase profit margins by almost a couple of points, which is a good thing in terms of keeping manufacturing companies healthy and profitable over the long haul.”

The 8.3 percent gain in 2015 capital expenditures was strong, coming in light of a 3.1 percent estimate in May, which Holcomb said will translate into efficiencies for manufacturing, with employment expected to hold steady and capital expenditures pegged at a conservative 1.0 percent until there is a clearer outlook of how things are going.

For non-manufacturing, the report expects revenue to rise 3.2 percent in 2016, which exceeds a 2.7 percent increase from 2014 to 2015, with 67 percent of respondents and 15 industries expecting higher 2016 revenues. Non-manufacturing capital expenditures are expected to rise 7.5 percent in 2016, following 2.6 percent increase in 2015. 2016 capacity utilization is estimated at 87.9 percent, which outpaces April 2015’s 86 percent. And 87 percent of ISM non-manufacturing respondents expects 2016 to be the same as or better than 2015.

Non-manufacturing production capacity, or the capacity to produce products or provide services in this sector, is expected to increase 2.8 percent in 2016, with 2015 production capacity up 1.5 percent, while employment is projected to rise 1.7 percent.

“With 15 of the 16 reporting non-manufacturing industries expecting growth in 2016, that correlates to confidence as far as what the year is going to look like,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee. “That is also reflected in the strong 7.5 percent capital expenditures projection, too, which bodes well for the sector’s mindset. Import and export growth is also expected, too. Overall, non-manufacturing is continuing on the steady post-recession growth pattern it has been on since 2009.”