Economic Growth to Continue Throughout 2017

Estimated reading time: 11 minutes

Economic growth is expected to continue in the U.S. throughout the remainder of 2017, say the nation's purchasing and supply executives in their Spring 2017 Semiannual Economic Forecast. Expectations for the remainder of 2017 continue to be positive in both the manufacturing and non-manufacturing sectors.

These projections are part of the forecast issued by the Business Survey Committee of the Institute for Supply Management® (ISM®). The forecast was presented today by Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee; and by Anthony S. Nieves, CPSM, C.P.M., A.P.P., CFPM, chair of the ISM Non-Manufacturing Business Survey Committee.

Manufacturing Summary

Sixty-four percent of respondents from the panel of manufacturing supply management executives predict their revenues will be 8.5% greater in 2017 compared to 2016, 12% expect a 9.6% decline, and 24% foresee no change in revenue. This yields an overall average forecast of 4.4% revenue growth among manufacturers for 2017. This current prediction is 0.2 percentage point below the December 2016 forecast of 4.6% revenue growth for 2017, but is 3.5 percentage points above the actual revenue growth reported for all of 2016. With operating capacity at 82.5%, an expected capital expenditure increase of 5.2%, an increase of 2.5% for prices paid for raw materials, and employment expected to increase by 1.3% by the end of 2017 compared to the end of 2016, manufacturing is positioned to grow revenues while managing costs through the remainder of the year. "With 17 of the 18 industries within the manufacturing sector predicting revenue growth in 2017, when compared to 2016, U.S. manufacturing continues to move in a positive direction," said Holcomb.

The 17 industries reporting expectations of growth in revenue for 2017 — listed in order — are: Electrical Equipment, Appliances & Components; Textile Mills; Computer & Electronic Products; Furniture & Related Products; Apparel, Leather & Allied Products; Primary Metals; Paper Products; Fabricated Metal Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Plastics & Rubber Products; Machinery; Chemical Products; Wood Products; Nonmetallic Mineral Products; and Printing & Related Support Activities.

The Manufacturing panel was also asked Special Questions related to the impact thus far in 2017 on the following: (1) Is your organization actively off-shoring or re-shoring "significant" volumes of manufacturing? What is the main reason? (2) Since the national election last November, has your firm increased, decreased, or left unchanged its capital spending plans for this year? Why do you say so? (3) An increase in pricing power enables a firm to raise prices without losing business to a competitor. Over the past six months, has your firm seen a change in its pricing power? (4) Do you believe your supply chain will be able to meet your company's 2017 delivery needs? Their responses are provided at the end of this report.

Non-Manufacturing Summary 

Fifty percent of non-manufacturing purchasing and supply executives expect their 2017 revenues to be greater by 10.6% as compared to 2016. Respondents currently expect a 4.1% net increase in overall revenues, which is the same as the 4.1% increase that was forecasted in December 2016. "Non-manufacturing will continue to grow for the balance of 2017. Non-manufacturing companies continue to operate very efficiently as reflected by the high percentage of capacity utilization. Supply managers have indicated that overall prices are projected to increase 1.5% over the year. Overall employment is projected to grow 2.2%. Fourteen out of 18 industries are forecasting increased revenues, which is more than the 13 industries that forecasted increased revenues last year. The non-manufacturing sector will continue economic growth throughout the year," Nieves said.

The 14 non-manufacturing industries expecting increases in revenue in 2017 — listed in order — are: Information; Wholesale Trade; Construction; Retail Trade; Finance & Insurance; Arts, Entertainment & Recreation; Health Care & Social Assistance; Professional, Scientific & Technical Services; Mining; Utilities; Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Educational Services; and Transportation & Warehousing.

The Non-Manufacturing panel was also asked Special Questions related to the impact thus far in 2017 on the following: (1) Is your organization actively off-shoring or re-shoring "significant" volumes of business processes? What is the main reason? (2) Since the national election last November, has your firm increased, decreased, or left unchanged its capital spending plans for this year? Why do you say so? (3) An increase in pricing power enables a firm to raise prices without losing business to a competitor. Over the past six months, has your firm seen a change in its pricing power? (4) Do you believe your supply chain will be able to meet your company's 2017 delivery needs? Their responses are provided at the end of this report.

OPERATING RATE

Manufacturing

Purchasing and supply managers report that their companies are currently operating on average at 82.5 percent of normal capacity, representing a small increase from the 81.9% reported in December 2016, as well as slightly larger increase from the 81.7% reported in April 2016. The 11 industries reporting operating capacity levels at or above the average capacity of 82.5%—listed in order—are: Wood Products; Paper Products; Petroleum & Coal Products; Plastics & Rubber Products; Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Computer & Electronic Products; Chemical Products; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components.

Non-Manufacturing

Non-manufacturing purchasing and supply executives report that their organizations are currently operating at 86.9% of normal capacity. This is 1.7% more than what was reported in December 2016 and higher than the 86.5% reported in April 2016. The following 12 industries are operating at capacity levels above the average rate of 86.9% — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Arts, Entertainment & Recreation; Mining; Educational Services; Utilities; Construction; Management of Companies & Support Services; Retail Trade; Finance & Insurance; Information; Public Administration; and Real Estate, Rental & Leasing.

PRODUCTION CAPACITY

Manufacturing

Production capacity in manufacturing is expected to increase 3.3% in 2017. This increase is less than the 4.2% increase predicted in December 2016 for 2017, but is greater than the 2.5% increase reported in December 2016 for all of 2016. This reflects the continuing strength in the sector as 38% of respondents expect an average capacity increase of 10.9%, 7% expect decreases averaging 13.7%, and 55% expect no change. The 15 industries expecting production capacity increases for 2017 — listed in order — are: Textile Mills; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Computer & Electronic Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Petroleum & Coal Products; Furniture & Related Products; Plastics & Rubber Products; Chemical Products; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Machinery; Primary Metals; and Paper Products.

Non-Manufacturing

The capacity to produce products or provide services in the non-manufacturing sector is expected to increase 2.7% during 2017. This compares to an increase of 1.9% reported for 2016, and a prediction in December 2016 for an increase of 3% for 2017. For 2017, 28% of non-manufacturing respondents expect their capacity to increase by an average of 11.6%, and 4% of the respondents foresee their capacity decreasing by an average of 12%. Sixty-eight percent expect no change in their capacity. The 12 industries expecting to add to their production capacity in 2017 — listed in order — are: Construction; Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Information; Health Care & Social Assistance; Other Services; Professional, Scientific & Technical Services; Wholesale Trade; Transportation & Warehousing; Retail Trade; Public Administration; and Accommodation & Food Services.

PREDICTED CAPITAL EXPENDITURES — 2017 vs. 2016

Manufacturing

Survey respondents expect a 5.2% increase in capital expenditures in 2017. This is notably higher than the 0.2% increase predicted by the panel in the December 2016 forecast for 2017. Currently, 30% of respondents predict increased capital expenditures in 2017, with an average increase of 32.9%, and the 17% who said their capital spending would decrease an average of 27%. Fifty-three percent say they will spend the same in 2017 as they did in 2016.The 11 industries expecting increases in capital expenditures in 2017 compared to 2016 — listed in order — are: Paper Products; Plastics & Rubber Products; Textile Mills; Furniture & Related Products; Electrical Equipment, Appliances & Components; Chemical Products; Fabricated Metal Products; Computer & Electronic Products; Petroleum & Coal Products; Nonmetallic Mineral Products; and Apparel, Leather & Allied Products.

Non-Manufacturing

Non-manufacturing purchasing and supply executives are expecting to increase their level of capital expenditures 5.2% in 2017 compared to 2016. The 36% of members expecting to spend more predict an average increase of 22.8%. Fifteen percent of respondents anticipate a decrease averaging 21.6%. Forty-nine percent of the respondents expect to spend the same on capital expenditures in 2017 as in 2016. The 11 industries expecting an increase in capital expenditures in 2017 from 2016 — listed in order — are: Arts, Entertainment & Recreation; Retail Trade; Public Administration; Professional, Scientific & Technical Services; Other Services; Health Care & Social Assistance; Wholesale Trade; Construction; Finance & Insurance; Management of Companies & Support Services; and Information.

Manufacturing

In the December 2016 forecast, respondents predicted an increase of 0.9% in prices paid during the first four months of 2017; and they now report prices have increased by 2.2% for the same period. The 55% who say their prices are higher now than at the end of 2016 report an average increase of 4.9%, while the 11% who report lower prices report an average decrease of 4.2%. The remaining 34% indicate no change for the period. Of the 18 manufacturing industries, the 16 industries that reported an increase in prices paid for the first part of 2017 — listed in order — are: Fabricated Metal Products; Plastics & Rubber Products; Primary Metals; Textile Mills; Chemical Products; Machinery; Electrical Equipment, Appliances & Components; Paper Products; Furniture & Related Products; Nonmetallic Mineral Products; Apparel, Leather & Allied Products; Computer & Electronic Products; Petroleum & Coal Products; Transportation Equipment; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing.

Non-Manufacturing

Non-Manufacturing respondents report that their purchases in the first four months of this year cost an average of 1.6% more than they cost at the end of 2016. This is 0.5 percentage point higher than the 1.1% increase predicted in December 2016 for the first four months of 2017. Forty-three percent of the non-manufacturing respondents report the prices they paid increased an average of 5.1% in the first part of 2017. Ten percent report price decreases averaging 6.7%. The remaining 47% indicate no change in prices paid in the first four months of 2017. The 12 industries reporting an increase in prices paid in the first part of 2017 — listed in order — are: Utilities; Agriculture, Forestry, Fishing & Hunting; Wholesale Trade; Professional, Scientific & Technical Services; Construction; Mining; Public Administration; Transportation & Warehousing; Health Care & Social Assistance; Finance & Insurance; Retail Trade; and Accommodation & Food Services.

Manufacturing

When asked to predict 2017 price changes, 64% of respondents expect the prices they pay to increase by 4.8% for the full year of 2017 compared to the end of 2016. At the same time, 13% anticipate decreases averaging 4.5%. Including the 23% who expect no change in prices, survey respondents expect net average prices to increase by 2.5% for the entire year 2017, indicating that prices are expected to rise 0.3 percentage point over the remainder of the year. Out of 18 manufacturing industries, 17 are predicting increases in prices for all of 2017 in the following order: Fabricated Metal Products; Textile Mills; Machinery; Petroleum & Coal Products; Furniture & Related Products; Chemical Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Paper Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Primary Metals; Printing & Related Support Activities; Computer & Electronic Products; Plastics & Rubber Products; Apparel, Leather & Allied Products; and Transportation Equipment.

Non-Manufacturing

For 2017, non-manufacturing respondents expect the prices they pay to increase on average 1.5% when compared to the prices at the end of 2016. Given that respondents have reported that prices have increased 1.6% through April 2017, the prediction is for prices to decrease 0.1 percentage point over the remainder of the year. Forty-nine percent of the respondents anticipate price increases averaging 4.4%. Twelve percent of the respondents expect price decreases of 5.5%, and 39% do not expect prices to change. The 15 industries expecting price increases in 2017 — listed in order — are: Mining; Agriculture, Forestry, Fishing & Hunting; Construction; Wholesale Trade; Professional, Scientific & Technical Services; Accommodation & Food Services; Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Public Administration; Transportation & Warehousing; Retail Trade; Finance & Insurance; Other Services; Educational Services; and Information.

EMPLOYMENT

Employment - Predicted Changes Between End of 2016 and End of 2017

Manufacturing

ISM's Manufacturing Business Survey respondents forecast that manufacturing employment will increase by 1.3% by the end 2017 compared to the end of 2016. Thirty-five percent of respondents expect employment to be 6.3% higher, while 12% of respondents predict employment to be lower by 7.3%. The remaining 53% of respondents expect their employment levels to be unchanged for the remainder of 2017. The 13 industries reporting expectations of growth in employment during 2017 — listed in order — are: Computer & Electronic Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Plastics & Rubber Products; Machinery; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Textile Mills; Fabricated Metal Products; Paper Products; Food, Beverage & Tobacco Products; Printing & Related Support Activities; and Chemical Products.

Non-Manufacturing

ISM's Non-Manufacturing Business Survey Committee respondents forecast that employment will increase 2.2% during the balance of 2017. For the remaining months of 2017, 39% expect employment to increase 7.4%, 10% anticipate employment to decrease by 7.3%, and 51% expect their employment levels to be unchanged. The 12 industries anticipating increases in employment in the remaining months of 2017 — listed in order — are: Information; Construction; Retail Trade; Professional, Scientific & Technical Services; Accommodation & Food Services; Wholesale Trade; Public Administration; Finance & Insurance; Agriculture, Forestry, Fishing & Hunting; Health Care & Social Assistance; Mining; and Other Services.

BUSINESS REVENUES

Business Revenues Comparison — 2017 vs. 2016

Manufacturing

Looking ahead, expectations are for increased revenues in 2017 as purchasing and supply management executives predict an overall net increase of 4.4% in business revenues for 2017 over 2016. This is 0.2 percentage point lower than the 4.6% increase forecast in December 2016 for all of 2017, and 3.5 percentage points higher than the 0.95% increase reported for 2016 over 2015. Sixty-four percent of respondents say that revenues for 2017 will increase an average of 8.5% over 2016. Conversely, 12% say their revenues will decrease an average of 9.6%, and the remaining 24% indicate no change. Of the 18 manufacturing industries, 17 are reporting expectations of growth in revenue during 2017 — listed in order — are: Electrical Equipment, Appliances & Components; Textile Mills; Computer & Electronic Products; Furniture & Related Products; Apparel, Leather & Allied Products; Primary Metals; Paper Products; Fabricated Metal Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Plastics & Rubber Products; Machinery; Chemical Products; Wood Products; Nonmetallic Mineral Products; and Printing & Related Support Activities.

Non-Manufacturing

Non-manufacturing respondents forecast that business revenues for 2017 will increase 4.1% compared to 2016. This is the same 4.1 increase that was predicted in December 2016 for 2017. The 50% of respondents forecasting better business in 2017 than in 2016 estimate an average revenue increase of 10.6%. This is in contrast to an average decrease of 9.4% forecast by the 13% who predict less business in 2017. The remaining 37% see no change in revenues for 2017. The 14 industries expecting an increase in revenues in 2017 — listed in order — are: Information; Wholesale Trade; Construction; Retail Trade; Finance & Insurance; Arts, Entertainment & Recreation; Health Care & Social Assistance; Professional, Scientific & Technical Services; Mining; Utilities; Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Educational Services; and Transportation & Warehousing.