Economic growth in the U.S. will continue in 2018, according to the nation’s purchasing and supply management executives surveyed for the Institute of Supply Management’s December 2017 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 2018, with revenues expected to increase in 16 manufacturing industries and the non-manufacturing sector indicating that 17 of its industries will see higher revenues.

Capital expenditures, a major driver in the U.S. economy, are expected to increase by 2.7% in the manufacturing sector and increase by 3.8% in the non-manufacturing sector. Manufacturers expect that their employment base will grow by 1.2%, while those in the non-manufacturing industries expect employment growth of 1.5%.

Manufacturing Summary

Expectations for 2018 are positive, as 70% of survey respondents expect revenues to be greater in 2018 than in 2017. The panel of purchasing and supply executives expects a 5.1% net increase in overall revenues for 2018, compared to a 4.6% increase predicted for 2017 over 2016 revenues.

The 16 manufacturing industries expecting revenue improvement in 2018 over 2017 — listed in order — are: Fabricated Metal Products; Electrical Equipment, Appliances and Components; Nonmetallic Mineral Products; Machinery; Miscellaneous Manufacturing; Computer and Electronic Products; Transportation Equipment; Plastics and Rubber Products; Primary Metals; Paper Products; Textile Mills; Chemical Products; Food, Beverage and Tobacco Products; Furniture and Related Products; Printing and Related Support Activities; and Petroleum and Coal Products.

“Manufacturing purchasing and supply executives expect to see growth in 2018. They are optimistic about their overall business prospects for the first half of 2018, with business continuing to expand through the second half of 2018,” said Timothy R. Fiore, CPSM, CPM, chair of the ISM Manufacturing Business Survey Committee. “In 2017, manufacturing experienced 11 straight months of growth from January through November, resulting in an average PMI of 57.4, compared to 51.5 for 2016, as reported in the monthly Manufacturing ISM Report on Business. Respondents expect raw materials pricing pressures in 2018 to increase and expect their profit margins will improve in 2018 over 2017. Manufacturers are also predicting growth in both exports and imports in 2018.”

In the manufacturing sector, respondents report operating at 85.8% of their normal capacity, up 3.3 percentage points from the 82.5% reported in May 2017. Purchasing and supply executives predict that capital expenditures will increase by 2.7% in 2018 over 2017, compared to the 8.7% increase reported for 2017 over 2016. Manufacturers have an expectation that employment in the sector will grow by 2.3% in 2017 relative to December 2016 levels, while labor and benefit costs are expected to increase an average of 2.1% in 2018. Respondents also expect the U.S. dollar to strengthen against all seven currencies of major trading partners in 2018, as was the case in 2017.

The panel predicts the prices paid for raw materials will increase by 1.3% during the first four months of 2018, and will increase an additional 0.5% during the balance of the year, with an overall increase of 1.8% for 2018. This compares to a reported 2.1% increase in raw materials prices for 2017 compared with 2016.

Non-Manufacturing Summary

Fifty-nine percent of non-manufacturing supply management executives expect their 2018 revenues to be greater than in 2017. They currently expect a 6% net increase in overall revenues for 2018 compared to a 5.7% increase reported for 2017 over 2016 revenues.

The 17 non-manufacturing industries expecting revenue improvement in 2018 over 2017 — listed in order — are: Information; Professional, Scientific and Technical Services; Construction; Agriculture, Forestry, Fishing and Hunting; Management of Companies and Support Services; Retail Trade; Real Estate, Rental and Leasing; Transportation and Warehousing; Wholesale Trade; Other Services; Health Care and Social Assistance; Arts, Entertainment and Recreation; Finance and Insurance; Educational Services; Accommodation and Food Services; Public Administration and Mining.

“Non-manufacturing supply managers report operating at 91.9% of their normal capacity, higher than the 86.9% reported in May 2017. They are optimistic about continued growth in the first half of 2018 compared to the second half of 2017, even though there is a projected decrease in growth rate for capital reinvestment,” said Nieves. “They forecast that their capacity to produce products and provide services will rise by 3.4% during 2018 and capital expenditures will increase by 3.8% from 2017 levels. Non-manufacturers also predict their employment will increase by 1.5% during 2018.”

Respondents in non-manufacturing industries expect the prices they pay for materials and services will increase by 2.2% during 2018. They also forecast their overall labor and benefit costs will increase 2.6% in 2018. Profit margins are reported to have decreased in the second and third quarters of 2017, and respondents expect them to increase between now and May 2018.