ISM Issues 2022 Semiannual Economic Forecast for Manufacturing and Services

SOURCE: Institute for Supply Management

(Tempe, Arizona) — Economic improvement in the United States will continue in 2023, say the nation’s purchasing and supply management executives in the December 2022 Semiannual Economic Forecast. Revenues are expected to increase in 15 of 18 manufacturing industries and 14 of 18 services-sector industries. Capital expenditures are expected to increase by 2.6 percent in the manufacturing sector (after a 12-percent increase in 2022) and increase by 2.8 percent in the services sector (after a 6-percent increase in 2022). The manufacturing employment base is expected to grow by 3.9 percent and the services employment base is expected to increase by 1 percent in 2023. Compared to the first half (H1), growth in the second half (H2) of the year is projected to rebound in manufacturing and accelerate in services.

These projections are part of the forecast issued by the Business Survey Committees of Institute for Supply Management® (ISM®). The forecast was released by Timothy R. Fiore, CPSM, C.P.M, 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 Services Business Survey Committee.


Manufacturing Summary

Expectations for 2023 are positive, as 45 percent of survey respondents expect revenues to be greater in 2023 than in 2022. The panel of purchasing and supply executives expects a 5.5-percent net increase in overall revenues for 2023, compared to a 9.3-percent increase reported for 2022. Fifteen of the 18 manufacturing industries expect revenue improvement in 2023, listed in order of largest to smallest projected increase: Plastics & Rubber Products; Transportation Equipment; Apparel, Leather & Allied Products; Fabricated Metal Products; Primary Metals; Food, Beverage & Tobacco Products; Printing & Related Support Activities; Furniture & Related Products; Machinery; Chemical Products; Computer & Electronic Products; Miscellaneous Manufacturing; Paper Products; Electrical Equipment, Appliances & Components; and Textile Mills.

“Manufacturing’s purchasing and supply executives expect to see overall growth in 2023. They are pessimistic about overall business prospects for the first half of 2023, but project growth returning in the second half. According to the ISM® Report On Business®, manufacturing grew for 29 consecutive months from June 2020 through October 2022 but dipped into contraction in November after declining in five out of the previous six months. Respondents expect raw materials pricing pressure to increase in 2023, but still see H1 2023 profit margins improving over H2 2022. Wages and employment will continue to grow. Manufacturers also predict growth in both exports and imports in 2023,” says Fiore.

In the manufacturing sector, respondents report operating at 88.4 percent of normal capacity, up 0.8 percentage point from the 87.2 percent reported in May 2022. Purchasing and supply executives predict that capital expenditures will increase year over year by 2.6 percent in 2023, compared to the 12-percent increase reported for 2022 compared to 2021. Manufacturers expect employment in the sector to grow by 3.9 percent in 2023 relative to December 2022 levels, while labor and benefit costs are expected to increase an average of 5.8 percent. Respondents also expect the U.S. dollar to strengthen against the currencies of seven major trading partners in 2023.

The panel predicts that prices paid for raw materials will increase 2.5 percent during the first five months of the year, with an overall increase of 2 percent for 2023. This compares to a reported 11.4 percent increase in raw materials prices between the end of 2021 and 2022.


Services Summary

Half (50 percent) of services supply management executives expect their 2023 revenues to be higher than in 2022. They expect a 3.1 percent net increase in overall revenues for 2023 compared to a 2.1-percent increase reported for 2022. The 14 industries expecting revenue increases in 2023 — listed in order of largest to smallest projected increase — are: Transportation & Warehousing; Mining; Professional, Scientific & Technical Services; Management of Companies & Support Services; Accommodation & Food Services; Real Estate, Rental & Leasing; Retail Trade; Utilities; Construction; Public Administration; Information; Finance & Insurance; Educational Services; and Other Services.

“Services supply executives report operating at 89.9 percent of normal capacity, slightly less than the 91 percent reported in May 2022. They are optimistic about continued growth in the first half of 2023 and expect more growth in the second half, with a projected increase in growth rate for capital reinvestment. They forecast that their capacity to produce products and provide services will rise by 3.4 percent during 2023, and capital expenditures will increase by 2.8 percent. Services panel members also predict their overall employment will increase by 1 percent during 2023,” says Nieves.

Respondents in services industries expect the prices they pay for materials and services to increase by 8.4 percent during 2023. They also forecast that their overall labor and benefit costs will increase 3.5 percent. Profit margin decreases were reported in the second and third quarters of 2022 and respondents expect them to decrease between now and May 2023.

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