Manufacturing

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ISM: Manufacturing Growth Expected in 2014

2 Jan, 2014


Economic growth in the United States will continue in 2014, say the nation's purchasing and supply management executives in their December 2013 Semiannual Economic Forecast. Expectations are for a continuation of the economic recovery that began in mid-2009, as indicated in the monthly ISM Report On Business®. The manufacturing sector is optimistic about growth in 2014, with revenues expected to increase in 16 manufacturing industries, and the non-manufacturing sector predicts that 14 of its industries will see higher revenues. Capital expenditures, a major driver in the U.S. economy, are expected to increase by 8 percent in the manufacturing sector and by 4.6 percent in the non-manufacturing sector. Manufacturing expects that its employment base will grow by 2.4 percent, while non-manufacturing expects employment growth of 2.1 percent.

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

Manufacturing Summary

Expectations for 2014 are positive as 69 percent of survey respondents expect revenues to be greater in 2014 than in 2013. The panel of purchasing and supply executives expects a 4.4 percent net increase in overall revenues for 2014, compared to a 4.6 percent increase reported for 2013 over 2012 revenues. The 16 manufacturing industries expecting revenue improvement over 2014 — listed in order — are: Textile Mills; Plastics & Rubber Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Furniture & Related Products; Wood Products; Electrical Equipment, Appliances & Components; Primary Metals; Nonmetallic Mineral Products; Chemical Products; Transportation Equipment; Paper Products; Computer & Electronic Products; Printing & Related Support Activities; Apparel, Leather & Allied Products; and Fabricated Metal Products.

"Manufacturing purchasing and supply executives expect to see continued growth in 2014. They are optimistic about their overall business prospects for the first half of 2014, and are even more optimistic about the second half of 2014," said Holcomb. "Manufacturing experienced six consecutive months of growth from June through November 2013, while experiencing only one month of contraction during the entire first 11 months of 2013, which occurred in May 2013 when the PMI™ registered 49 percent (as measured by and reported in the monthly Manufacturing ISM Report On Business®). Our forecast calls for a continuation of growth in 2014, building on the momentum from the second half of 2013. Respondents expect raw materials pricing pressures in 2014 to be low, similar to levels experienced in 2013, and expect their margins will improve."

In the manufacturing sector, respondents report operating at 80.3 percent of their normal capacity, up very slightly from 80.2 percent reported in April 2013. Purchasing and supply executives predict that capital expenditures will increase by 8 percent in 2014 over 2013, compared to a 12.3 percent increase reported for 2013 over 2012. Survey respondents also forecast that they will increase inventories by 0.9 percent to support their planned level of sales in 2014. Manufacturers have an expectation that employment in the sector will increase by 2.4 percent in 2014, while labor and benefit costs are expected to increase an average of 2.3 percent. Manufacturing purchasers are predicting growth in exports and imports in 2014. Respondents also expect the U.S. dollar to strengthen on average against the currencies of major trading partners.

The panel also predicts the prices they pay for raw materials will increase 1.2 percent during the first four months of 2014, and will increase an additional 0.4 percent during the balance of the year, with an overall increase of 1.6 percent for 2014. This compares to a reported 0.9 percent increase in raw materials prices for 2013 compared with 2012.

Survey respondents report that the most challenging problems facing their businesses as they plan for 2014 are: domestic sales growth (32 percent); international sales growth (18 percent); healthcare reform uncertainty (14.6 percent); ongoing government shutdown and debt ceiling concerns (13.5 percent); government regulations (9.6 percent); healthcare costs (8.4 percent); inflation (3.4 percent); and taxes (0.6 percent).

The panel also indicated that supply chain management practices will be improved in 2014 using the following strategies, listed in order: strategic sourcing/supply base rationalization; process and information systems improvements; supplier relationship management; inventory management and control; and improved cross-functional planning and scheduling.

Non-Manufacturing Summary

Fifty-eight percent of non-manufacturing supply management executives expect their 2014 revenues to be greater than in 2013. They currently expect a 3.6 percent net increase in overall revenues for 2014 compared to a 4 percent increase reported for 2013 over 2012 revenues. The 14 non-manufacturing industries expecting revenue improvement in 2014 over 2013 — listed in order — are: Professional, Scientific & Technical Services; Management of Companies & Support Services; Other Services; Wholesale Trade; Finance & Insurance; Educational Services; Retail Trade; Real Estate, Rental & Leasing; Construction; Arts, Entertainment & Recreation; Information; Public Administration; Transportation & Warehousing; and Utilities.

"Non-manufacturing supply managers report operating at 86.3 percent of their normal capacity, higher than the 84.7 percent reported in April 2013. They are optimistic about continued growth in the first half of 2014 compared to the second half of 2013, and they have a higher level of optimism about the next 12 months than they had last December for 2013," said Nieves. "They forecast that their capacity to produce products and provide services will rise by 1.9 percent during 2014, and capital expenditures will increase by 4.6 percent from the 2013 levels. Non-manufacturers also predict their employment will increase by 2.1 percent during 2014."

Respondents in non-manufacturing industries expect the prices they pay for materials and services will increase by 1.9 percent during 2014. They also forecast their overall labor and benefit costs will increase 2.6 percent in 2014. Profit margins are reported to have decreased in the second and third quarters of 2013, and respondents expect them to increase between now and April 2014.

Survey respondents report that the most challenging problems facing their businesses as they plan for 2014 are: domestic sales growth (31.8%); government regulations (18.9%); healthcare cost (14.9%); healthcare reform uncertainty (14.9%); ongoing government shutdown and debt ceiling concerns (8.1%); inflation (6.1%); international sales growth (4.1%); and taxes (1.4%).

Survey respondents indicate that technology and process improvement is the most frequently cited means of improving supply chains in 2014. Other improvement approaches include: strategic cost and contract management; strategic sourcing; supplier relationship management; and professional development.

SUMMARY AT A GLANCE

Manufacturing

The manufacturing sector is currently expanding, and the forecast indicates that it will continue to expand in the first half of 2014, and at a faster rate in the second half of 2014.

  • Operating rate is currently at 80.3 percent.
  • Production capacity increased by 5.2 percent in 2013.
  • Production capacity is expected to increase by 6.3 percent in 2014.
  • Capital expenditures increased 12.3 percent in 2013.
  • Capital expenditures are expected to increase 8 percent in 2014.
  • Prices paid increased 0.9 percent in 2013.
  • Overall 2014 prices paid are expected to increase 1.6 percent.
  • Labor and benefit costs are expected to increase 2.3 percent in 2014.
  • Manufacturing employment is expected to increase 2.4 percent in 2014.
  • Expect growth in U.S. exports in 2014.
  • Expect growth in U.S. imports in 2014.
  • Manufacturing revenues (nominal) are up 3.4 percent in 2013.
  • Manufacturing revenues (nominal) are expected to increase 4.4 percent in 2014.
  • The U.S. dollar is expected to strengthen on average versus major trading partner currencies in 2014.
  • Overall attitude of manufacturing supply managers: optimistic outlook, with 87 percent of respondents predicting 2014 will be the same as or better than 2013.

Non-Manufacturing

The non-manufacturing sector continues to expand, and the forecast indicates an increased rate of expansion in 2014.

  • Operating rate is currently at 86.3 percent.
  • Production capacity increased 2.3 percent in 2013.
  • Production and provision capacity is expected to increase 1.9 percent in 2014.
  • Capital expenditures increased 4.2 percent in 2013.
  • Capital expenditures are expected to increase 4.6 percent in 2014.
  • Prices paid increased 1.3 percent in 2013.
  • Prices paid are expected to increase 1.9 percent in 2014.
  • Labor and benefit costs are expected to increase 2.6 percent in 2014.
  • Non-manufacturing employment is expected to increase 2.1 percent in 2014.
  • Expect export levels to increase in 2014.
  • Expect import growth in 2014.
  • Non-manufacturing revenues (nominal) are up 4 percent in 2013.
  • Non-manufacturing revenues (nominal) are expected to rise 3.6 percent in 2014.
  • Overall attitude of non-manufacturing supply managers: mostly positive outlook, with 84 percent of respondents predicting 2014 will be the same as or better than 2013.
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