The Institute for Supply Management provides a semiannual forecast that distributors can use to gauge the health and expectations of manufacturing and non-manufacturing industries. This article provides the highlights from the latest forecast, which was released in December.

Economic growth in the United States will continue in 2017, say the nation’s purchasing and supply management executives in their December 2016 Semiannual Economic Forecast. Expectations are for continuation of the economic recovery that began in mid-2009, as indicated in the monthly Institute for Supply Management’s Report on Business.

The manufacturing sector is optimistic about growth in 2017, with revenues expected to increase in 16 manufacturing industries, and the non-manufacturing sector expects 14 of its industries will see higher revenues.

Capital expenditures, a major driver in the U.S. economy, are expected to increase by 0.2 percent in the manufacturing sector and decrease by 0.2 percent in the non-manufacturing sector. Manufacturing expects that its employment base will grow by 0.6 percent, while non-manufacturing expects employment growth of 1.2 percent

Manufacturing Summary

Expectations for 2017 are positive as 67 percent of survey respondents expect revenues to be greater in 2017 than in 2016. The panel of purchasing and supply executives expects a 4.6 percent net increase in overall revenues for 2017, compared to a 0.9 percent increase reported for 2016 over 2015 revenues.

The 16 manufacturing industries expecting revenue improvement in 2017 over 2016 – listed in order – are: Printing & Related Support Activities; Textile Mills; Fabricated Metal Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Transportation Equipment; Miscellaneous Manufacturing; Petroleum & Coal Products; Chemical Products; Primary Metals; Paper Products; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Plastics & Rubber Products; and Machinery.

In 2016, manufacturing experienced eight months of growth overall from January through November, including three consecutive months of growth from September through November, resulting in an average PMI of 51.2.

Manufacturing purchasing and supply executives are optimistic about overall business prospects in the first half of the year and slightly more optimistic about the second half.

Manufacturers expect raw materials pricing pressures in 2016 to be low and profit margin improvement in 2017. They also predict growth in both exports and imports.

In the manufacturing sector, respondents report operating at 81.9 percent of their normal capacity, up 0.2 percentage point from the 81.7 percent reported in April 2016. Purchasing and supply executives predict that capital expenditures will increase by a modest 0.2 percent in 2017 over 2016, compared to the 7.3 percent increase reported for 2016 over 2015.

Labor and benefit costs are expected to increase an average of 2.5 percent.

Respondents also expect the U.S. dollar to strengthen against all seven currencies of major trading partners in 2017, as was the case in 2016.

The panel predicts prices paid for raw materials will increase by 0.9 percent during the first four months of 2017 and an additional 0.4 percent during the balance of the year, with an overall increase of 1.3 percent for 2017. This compares to a reported 0.4 percent decrease in raw materials prices for 2016 compared with 2015.

Four special questions were asked of the panel in this year’s report. The first special question asked about the strength of the U.S. dollar’s net impact on profits for 2016. The responses from the manufacturing panel were: “negative” (17.8 percent), “negligible” (52.6 percent), “positive” (11.3 percent) and “unsure” (18.3 percent).

The second special question asked about the net impact of depressed prices for oil and related commodities on profits. The responses from the manufacturing panel were: “negative” (19.6 percent), “negligible” (22.4 percent), “positive” (48.6 percent) and “unsure” (9.3 percent).

The third special question asked about the combined net impact on profitsfor both of those categories. The responses from the manufacturing panel were: “negative” (18.9 percent), “negligible” (28.8 percent), “positive” (35.4 percent) and “unsure” (17 percent).

The fourth special question asked if trade liberalization with Japan and/or Europe would help their businesses. The responses from the manufacturing panel were: “yes, with Europe” (13.6 percent), “yes, with Japan” (5.6 percent), “yes, both” (31.5 percent) and “no” (49.3 percent).

Non-Manufacturing Summary

Fifty-seven percent of non-manufacturing supply management executives expect their 2017 revenues to be greater than in 2016. They currently expect a 4.1 percent net increase in overall revenues for 2017 compared to a 2.7 percent increase reported for 2016 over 2015 revenues.

The 14 non-manufacturing industries expecting revenue improvement in 2017 over 2016 – listed in order – are: Information; Professional, Scientific & Technical Services; Construction; Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Retail Trade; Wholesale Trade; Mining; Utilities; Accommodation & Food Services; Finance & Insurance; Health Care & Social Assistance; and Other Services.

ISM reported that non-manufacturing supply managers’ report operating at 85.2 percent of their normal capacity, lower than the 86.5 percent reported in April 2016. They are optimistic about continued growth in the first half of 2017 compared to the second half of 2016 even though there are some projected decreases in growth rate and capital reinvestment.

Capacity to produce products and provide services is forecast to rise by 3 percent during 2017, and capital expenditures are forecast to decrease by 0.2 percent from 2016 levels.

Respondents in non-manufacturing industries expect the prices they pay for materials and services will increase by 1.8 percent during 2017. They also forecast their overall labor and benefit costs will increase 2.5 percent in 2017. Profit margins are reported to have increased in the second and third quarters of 2016, and respondents expect them to increase between now and April 2017.

The same four special questions were asked of the non-manufacturing panel. The first special question asked about the net impact on their organization’s profits for the year 2016 thus far related to the strength of the U.S. dollar. The responses from our non-manufacturing panel were: “negative” (8.1 percent), “negligible” (50.6 percent), “positive” (13.8 percent) and “unsure” (27.5 percent).

The second special question asked about the net impact on their organization’s profits for the year 2016 thus far related to the depressed prices of oil and related commodities in 2016. The responses from our non-manufacturing panel were: “negative” (10.4 percent), “negligible” (27 percent), “positive” (43.6 percent) and “unsure” (19 percent).

The third special question asked about the combined net impact from the strength of the U.S. dollar and the depressed prices of oil and related commodities in 2016. The responses from our non-manufacturing panel were: “negative” (12.4 percent), “negligible” (33.5 percent), “positive” (32.9 percent) and “unsure” (21.1 percent).

The fourth special question asked whether trade liberalization with Japan and/or Europe would help their businesses. The responses from our non-manufacturing panel were: “yes, with Europe” (7.4 percent), “yes, with Japan” (0.6 percent), “yes, both” (21.5 percent) and “no” (70.6 percent).