ISM Semiannual report issues positive 2022 outlook for manufacturing and services sectors

Key indicators in the December 2021 ISM Semiannual Economic Forecast, which was released this week, point towards continued economic expansion in 2022.

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 6.5% 2022 revenue gain, trailing the 7.2% estimate, for 2021, made in its previous report in May 2021. The report noted that 65% of its respondents indicated 2022 revenues will top 2021 revenues, with 15 of the 18 manufacturing sectors tracked by ISM pegged for revenue growth. Manufacturing continues to perform at a strong level, going back to March 2020, with March 2021 being the high point over a 12-month period through November.

Manufacturing capital expenses (capex) are expected to see a 7.7% increase in 2022, following a 12.1% decrease in 2021, slightly below the May report’s 8.7% projection, for 2021, made in May. And 40% of manufacturing respondents calling for a capex uptick in 2022 pointed to an average increase of 27.1%, whereas, of the 11% indicating their capex would be down, expect an average decrease of 31.2%, with 49% expecting no changes.

Manufacturing capacity utilization, or operating rate, came in at 88.7 of normal capacity, topping May’s 88.3%, for its highest reading since 2016, and also above December 2020’s 85.7% reading. Raw materials prices paid are expected to be up 8.1% in 2022, following a 14.5% 2021 increase. And manufacturing employment is expected to be up 1.0% in 2022, following May’s 2.8% estimate for 2021.

“Manufacturing’s purchasing and supply executives expect to see strong growth in 2022,” wrote Tim Fiore, Chair of the ISM Manufacturing Business Survey Committee, in the report. “They are optimistic about overall business prospects for the first half of 2022, with business continuing to expand through the second half, though at slightly lower rates. Manufacturing experienced 18 consecutive months of growth from June 2020 through November 2021, with the composite PMI registering above 60 in nine of the last 12 months of that time frame. Respondents expect raw materials pricing pressure to increase in 2022, as well as improved profit margins over H2 2021. Wages and employment will continue high rates of growth as hiring slows. Manufacturers also predict growth in both exports and imports in 2022.”

Services outlook: The report said that its panelists are calling for 2022 revenues to see a 4.3% annual gain, in line with 2021’s 4.8% increase, adding that 17 sectors are calling for revenue gains in 2022.

Services production capacity, or the capacity to produce products or provide services in this sector, came in at 89.4% of normal capacity, matching May’s reading, with the report observing that panelists are “optimistic about continued growth in the first half of 2022 and more growth for the second half.” What’s more, ISM said that service production capacity increased 2.3% over the course of 2021 and was off 1% compared to a 3.3% 2022 growth estimate.

Prices paid for raw materials in the services sector are estimated to increase 8.9% in 2022, with labor and benefit costs pegged to see a 6.1% increase.

“Services supply executives report operating at 89.4 percent of their normal capacity, the same as the 89.4 percent reported in May 2021,” wrote Tony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee, in the report. “They are optimistic about continued growth in the first half of 2022 and more growth for the second half, with a projected increase in growth rate for capital reinvestment. They forecast that their capacity to produce products and provide services will rise by 3.3 percent during 2022, and capital expenditures will increase by 10.3 percent. Services panel members also predict their overall employment will increase by 1 percent during 2022.”