ISM Semiannual report indicates continued economic output into 2024

Even though the manufacturing and service sectors have been on diverging paths in 2023, with manufacturing having contracted for 13 consecutive months, and services having grown for 11 consecutive months,  respectively, through November, one common theme they share is expectations for growth in the coming year.

That is a key takeaway from the Institute for Supply Management’s (ISM) December 2023 Semiannual Economic Forecast, which was issued today.

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 5.6% revenue gain in 2024, well above a reported 0.9% increase for 2023, with 58% of ISM survey respondents expecting 2024 revenues to top 2023 and estimating an average revenue increase of 9.2%. And 13% of respondents indicated 2024 revenues will fall 10.3%, with 29% expecting flat revenues in 2024. ISM also noted that 15 of the 18 manufacturing it tracks are calling for revenue improvement in 2024, including: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Paper Products; Furniture & Related Products; Primary Metals; Miscellaneous Manufacturing; Transportation Equipment; Chemical Products; Textile Mills; Machinery; Fabricated Metal Products; Plastics & Rubber Products; Nonmetallic Mineral Products; and Petroleum & Coal Products.

Manufacturing capital expenditures (capex) are projected to increase 11.9% in 2024, following a 14.9% 2023 increase, and production capacity rose 0.7% in 2023, with 2024 production capacity expected to increase 7.8%.

Other key manufacturing findings include:

• prices paid increased 4.1% in 2023, with 2024 prices expected to increase 3.3%,
• labor and benefit costs are expected to increase 5.2% in 2024;
• manufacturing employment is predicted to increase 2% in 2024;
• U.S. exports growth expected in 2024, and U.S. imports growth expected in 2024;
• the U.S. dollar is expected to strengthen versus the currencies of seven major trading partners in 2024; and
• manufacturing supply managers have a positive outlook, with 34% of respondents predicting 2024 will be better than 2023, and 20% of respondents predicting 2024 will be worse than 2023

“Manufacturing’s purchasing and supply executives expect to see overall growth in 2024. They are optimistic about overall business prospects for the first half of 2024 and more excited about faster growth in the second half. According to the ISM Report On Business, manufacturing grew for 28 consecutive months from June 2020 through September 2022, was unchanged in October, but dipped into contraction in November 2022, with the index remaining in contraction until now. Respondents expect raw materials pricing pressure to ease in 2024 and see H1 2024 profit margins improving over H2 2023. Wages and employment will continue to grow. Manufacturers also predict growth in both exports and imports in 2024,” - Tim Fiore, Chair of the ISM Manufacturing Business Survey Committee

Services outlook: ISM member panelists are calling for 2024 services-based economy revenues to increase 6.9% in 2024, following a 4.2% 2023 gain (which topped a 2.7% May estimate for 2023), with 43% of panelists expecting 2024 revenues to be higher. And 46% of the respondents that reported better business in 2023 than 2022 are estimating an average revenue increase of 19.4% compared to an average decrease of 21.6% reported by the 23% of respondents who indicate worse business in 2023. And the remaining 31% have experienced no change in 2023, the report said.

The report said that 16 services sectors expect revenue increases in 2024, including: Retail Trade; Professional, Scientific & Technical Services; Construction; Transportation & Warehousing; Management of Companies & Support Services; Wholesale Trade; Finance & Insurance; Public Administration; Mining; Accommodation & Food Services; Utilities; Health Care & Social Assistance; Arts, Entertainment & Recreation; Information; Other Services; and Educational Services.

Other key services findings include:

• operating rate is currently at 86.5%
• production capacity increased 3.9% in 2023.
• production and provision capacity is expected to increase 4.1% in 2024.
• capital expenditures increased 4.2% in 2023.
• capital expenditures are expected to increase 2.9% in 2024.
• prices paid increased 5.7 % in 2023.
• prices paid are expected to increase 3.4 % in 2024.
• labor and benefit costs are expected to increase 3.3% in 2024.
• employment is expected to increase 0.8% in 2024.
• export levels expected to increase in 2024;
• import growth expected in 2024; and
• services supply managers are positive in their outlook, with 33% of respondents predicting 2024 will improve compared to 2023.

“Services supply executives report operating at 86.5 percent of normal capacity, less than the 91 percent reported in May 2023,” said Tony Nieves, Chair of the ISM’s Business Survey Committee, in the report. “They are guarded about the first half of 2024, but expect robust growth in the second half, with a projected increase in capital reinvestment. They forecast that their capacity to produce products and provide services will rise by 4.1 percent during 2024, and capital expenditures will increase by 2.9 percent. Services panel members also predict their overall employment will increase by 0.8 percent during 2024.”