ISM Semiannual report says manufacturing and non-manufacturing growth remains in the cards for 2019

A forecast for continued growth for both the manufacturing and non-manufacturing sectors remains positive, based on data in the Institute for Supply Management’s (ISM) Spring 2019 Semiannual Economic Forecast, which was released 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 4% annual gain in 2019 revenue, which trails 5.7% increase for the same period, which was pegged in the December 2018 report. What’s more, 55% of manufacturing respondents expected 4% annual growth, and 11% expected 11.1% growth. And revenue growth in 2019 is expected in 17 of the 18 manufacturing industries.

2019 manufacturing capital expenses (capex) are expected to rise 5.9% in 2019 over 2018, which was in line with December’s 6% estimate and down from the 13.4% increase in 2018 over 2017. The report noted that 55% of manufacturing respondents called for the same level of capex outlays in 2019 as they made in 2018.

Manufacturing capacity utilization, which came in at 84.2, is in line with December’s 85.2 reading, and production capacity is expected to rise 4.5% in 2019, down slightly from December’s 4.7% estimate. Raw materials prices are slotted to see a 1.4% gain in 2019, with most of that already factored into the total number and a decrease of 0.1% is expected over the remainder of the year. Manufacturing employment is expected to see a 2% gain in 2019, with 36.7% of respondents expecting employment to be up by 6.7% or higher.

“These are good numbers, even with growth down from December’s estimate,” said Tim Fiore, chair of the ISM’s Manufacturing Business Survey Committee. “It is still a very good number at 4%. “We are a little less optimistic midway through the year compared to how we felt going into 2019, but things are still strong, as the growth levels indicate. Things continue to grow at a respectable level and are at strong levels consistent with a growing economy.”

Fiore noted that it bears reminding that when the December report was issued, the PMI, the index ISM uses to measure manufacturing growth, was at 58 (a reading of 50 or higher indicates growth), whereas the current PMI is now around 52, which speaks to slightly lower optimism even though the numbers remain in close range from December to May. And he noted that it validates the fact that respondents feel good about how 2019 would be heading into the year.  

On the non-manufacturing side, the report expects 2019 revenues to increase by 3.1%, down from December’s 3.7% reading, and 17 of the 18 non-manufacturing sectors calling for higher revenues, matching the previous report. 

Non-manufacturing production capacity, or the capacity to produce products or provide services in this sector, is expected to increase 2% in 2019 compared to the prior reading of 2.9%, and non-manufacturing capex is expected to be up 2.1%, down from a 3.4% December estimate. Prices paid for non-manufacturing are expected to increase by 1.5% in 2019, down from December’s 3.6%. The report noted that 2019 prices are up 1% through May, with a gain of an additional 0.5% expected over the balance of 2019.

Non-manufacturing capacity utilization, or the operating rate, at 89%, edged out December’s 88.4%, and non-manufacturing employment is expected to increase 1.3% in 2019 compared to a prior 2% estimate.   

“Non-manufacturing is going very well,” said Tony Nieves, chair of the ISM’s Non Manufacturing Business Survey Committee, in an interview. “If you look back to the fourth quarter of 2018, the sector was running very hot, which was followed by some cooling-off periods. But, over all, this is what I feel to steady and sustainable growth, even with recent leveling off, to a point. Some non-manufacturing projections are softer than manufacturing, but when you look at the revenue, it is not down much compared to December’s estimate, and the same goes for the strong projected operating rate, which directly speaks to doing more with less.”