ISM Semiannual Economic Forecast for remainder of 2021 remains positive

Keeping in line with its previous edition released in January, the Institute for Supply Management’s (ISM) Spring 2021 Semiannual Economic Forecast, which was released this week, continues to point to ongoing economic growth through the remainder of 2021.

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 7.2% in 2021 revenue gain, topping the 6.9% projection made in its previous report, which was issued in December, and would outpace 2020’s 1.3% annual decline by 8.5%. And 59% of the report’s manufacturing survey respondents are calling for revenues to be up annually in 2021, with all of the 18 manufacturing sectors tracked by ISM pegged for revenue growth. Manufacturing has been on an upswing going back to June 2020, and its March PMI, the reading used by ISM to measure growth, coming in at its highest level since November 1983.

Manufacturing capital expenses (capex) are expected to see an 8.7% annual increase, far ahead of December’s 2.4% projection, with the 27% of the report’s respondents indicating capex will rise in 2021 pointing to an expected average increase of 46%, with 16% stating their capex would decline on average by 23.9%, and 57% expecting no changes.  

Manufacturing capacity utilization, or operating rate, which came in at 88.3% of normal capacity [its highest reading since 2016], is 2.6% above December’s 85.7% reading, with production capacity expected to be up 5.3%, matching January’s 5.3% reading and far ahead of 2020’s 0.5% annual increase. Raw material prices are expected to be up 8.1% in 2021, ahead of December’s 2.9% projection, indicating a 0.2% decrease over the remainder of 2021. Manufacturing employment is expected to head up 2.8% this year, which is in line with December’s 2.8% estimate.

“This is an excellent report, no doubt about it,” said Tim Fiore, Chair of the ISM Manufacturing Business Survey Committee. “Optimism is better in May than it was in December 2020, in terms of the growth projections and the rate of change. Revenue and capex were very strong, as was capacity utilization, which were offset by price increases inability to hire labor. Post-pandemic, we thought we would see a 10% decline in 2020 revenue, but ended up with a 1.3% decline, and now we have as 7.2% revenue gain projected for 2021.”

Services revenue is pegged to increase 5.4% in 2021, topping the previous estimate of 1.6%. Services production capacity, or the capacity to produce products or provide services in this sector, is pegged to head up 2.3% in 2021, down from December’s 3.2% projection. And services capex is expected to now be up 5.7% for the year, down from December’s projected 12.7% increase. Prices paid for raw materials in the services sector are expected to rise 4.9% for all of 2021, holding steady for the remainder of the year, ahead of December’s 3.5% estimate.

Services sector capacity utilization, or the operating rate, is now at 89.4%, ahead of December’s 86.6%.

“In the last report, we saw pullback on all numbers across the board compared to what we saw prior to the outset of the pandemic,” said Tony Nieves, Chair of ISM’s Non-Manufacturing Business Survey Committee. “We had capacity issues and also had employment issues going into the pandemic, during the pandemic, and now on the recovery side, and not having the right, or applicable labor pool, and also supply and demand issues.”

The Services revenue numbers were described as very good by Nieves, as they each are typically closer to the 2% range, whereas capex was not as strong as it has been in the past but was still viewed as solid. And the 89.4% capacity utilization number was strong, he added, even with people working remotely.

“Overall, in looking at the services sector, this report presents a good picture and reflects a strong recovery forthcoming,” he said.