According to December release of the Institute for Supply Management’s semiannual economic forecast, revenues are expected to increase in 15 of 18 manufacturing industries and 14 of 18 services sector industries in 2023. The forecast also projects that capital expenditures will increase by 2.6% in the manufacturing sector (after a 12% increase in 2022) and by 2.8% in the services sector (after a 6% increase in 2022). Meanwhile, the manufacturing employment base is expected to grow by 3.9% and the services employment base is expected to increase by 1% in 2023. Compared to the first half of 2023, growth in the second half of the year is projected to rebound in manufacturing and accelerate in services.

Manufacturing Summary

Expectations for 2023 are relatively positive, as 45% of survey respondents expect revenues to be greater in 2023 than in 2022. The panel of purchasing and supply executives expects a 5.5% net increase in overall revenues for 2023, compared to a 9.3% increase reported for 2022. Fifteen of the 18 manufacturing industries expect revenue improvement in 2023, including transportation equipment; primary metals and machinery.

“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,” Timothy R. Fiore, CPSM, CPM, chair of the ISM’s manufacturing business survey committee, said.

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

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

Services Summary

Half (50%) of services supply management executives expect their 2023 revenues to be higher than in 2022. They expect a 3.1% net increase in overall revenues for 2023 compared to a 2.1% increase reported for 2022. The 14 industries expecting revenue increases in 2023 include transportation and warehousing, mining and finance and insurance.

“Services supply executives report operating at 89.9% of normal capacity, slightly less than the 91% 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% during 2023, and capital expenditures will increase by 2.8%. Services panel members also predict their overall employment will increase by 1% during 2023,” Anthony S. Nieves, CPSM, CPM, APP, CFPM, chair of the ISM’s services business survey committee, said.

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