ISM Predicts Continued Economic Improvement in 2021
JAN 20, 2021 - 6:50 am
According to its most recent economic forecast, the Institute for Supply Management expects that economic improvement will continue in the United States in 2021. This expansion will continue a growth trend that began in June 2020, as indicated in the monthly ISM Report on Business. Revenues are expected to increase in 15 of 18 manufacturing industries and 12 of 18 services-sector industries. Capital expenditures are expected to increase by 2.4% in the manufacturing sector (after a 2.4% decline in 2020) and increase by 12.7% in the services sector. The manufacturing employment base is expected to grow by 2.5% following a decline of 2.8% in 2019. Growth in the second half (H2) of the year is projected to be stronger than in the first half.
Expectations for 2021 are positive, as 59% of survey respondents expect revenues to be greater in 2021 than in 2020. The panel of purchasing and supply executives expects a 6.9% net increase in overall revenues for 2021 compared with a 1.3% decrease reported for 2020. Fifteen of the 18 manufacturing industries expect revenue improvement in 2021, including printing and related support activities; transportation equipment; nonmetallic mineral products; apparel, leather and allied products; machinery; computer and electronic products; primary metals; plastics and rubber products; fabricated metal products; miscellaneous manufacturing; chemical products; electrical equipment, appliances and components; food, beverage and tobacco products; furniture and related products; and paper products.
“Manufacturing’s purchasing and supply executives expect to see strong growth in 2021. They are optimistic about overall business prospects for the first half of 2021, with business continuing to expand through the second half and at higher rates,” Timothy R. Fiore, CPSM, CPM, chair of the ISM manufacturing business survey committee, said. “Manufacturing experienced seven consecutive months of growth from June through December 2020, with December’s PMI at its highest level since August 2018, the peak of the last manufacturing expansion. Respondents expect an increase in raw materials pricing pressures in 2021, as well as improved profit margins. Wages and employment will also return to growth. Manufacturers also predict growth in both exports and imports in 2021.”
In the manufacturing sector, respondents reported operating at 85.7% of their normal capacity, up 9.8% from the 75.9% reported in May 2020. Purchasing and supply executives predicted that capital expenditures will increase by 2.4% in 2021 vs. 2020 compared with the 2.4% decrease reported for 2020 vs. 2019. Manufacturers expect employment in the sector to grow by 2.5% in 2021 relative to December 2020 levels, while labor and benefit costs are expected to increase an average of 2.7%. Respondents also expect the U.S. dollar to weaken against six of the seven currencies of major trading partners in 2021, while it is expected to strengthen relative to the Mexican peso.
The panel predicted that the prices paid for raw materials will increase by 2.5% during the first five months of 2021, with an overall increase of 2.9% for 2021. This compares to a reported 2.8% decrease in raw materials prices between the end of 2019 and May of 2020.
Forty percent of services supply management executives expect their 2021 revenues to be greater than in 2020. They expect a 1.6% net increase in overall revenues for 2021 compared with a 4.8% decrease reported for 2020. The 12 industries expecting increases in revenues in 2021 include mining; management of companies and support services; professional, scientific and technical services; agriculture, forestry, fishing and hunting; wholesale trade; retail trade; transportation and warehousing; healthcare and social assistance; real estate, rental and leasing; utilities; construction; and finance and insurance.
“Services supply managers report operating at 86.6% of their normal capacity, higher than the 73.3% reported in May 2020. They are optimistic about continued growth in the first half of 2021 and more growth for the second half, with a projected increase in growth rate for capital reinvestment,” Anthony S. Nieves, CPSM, CPM, APP, CFPM, chair of the ISM services business survey committee, said. “They forecast that their capacity to produce products and provide services will rise by 3.2% during 2021, and capital expenditures will increase by 12.7%. Services panel members also predict their overall employment will increase by 1.6% during 2021.”
Respondents in services industries expect the prices they pay for materials and services to increase by 3.5% during 2021. They also forecast that their overall labor and benefit costs will increase 2.2%. Profit margin decreases were reported in the second and third quarters of 2020, but respondents expect them to increase between now and May 2021.
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