Although the electronics components industry may not be feeling the same momentum, the U.S. manufacturing sector expects to increase its revenue, employment and capital expenditures in 2014, according to the latest report by the Institute for Supply Management.
Overall manufacturing revenue is expected to grow by 4.4 percent in 2014, according to Bradley J. Holcomb, chair of the ISM Manufacturing Business Survey Committee. Although this lags the 4.6 percent growth forecast for 2013, the industry remains positive.
“Manufacturing purchasing and supply executives are optimistic about their overall business prospects for the first half of 2014, and are even more optimistic about the second half of 2014,” said Holcomb. “Manufacturing experienced six consecutive months of growth from June through November 2013, while experiencing only one month of contraction during the entire first 11 months of 2013.” In May, the ISM’s leading index – the PMI — registered 49 percent. A reading above 50 percent generally indicates growth while a reading below 50 reflects contraction.
In the first half of the year the PMI averaged 51.5 percent; in the second half the average has been 56.2 percent.
“Our forecast calls for a continuation of growth in 2014,” Holcomb said, “building on the momentum from the second half of 2013. Respondents expect raw materials pricing pressures in 2014 to be low, similar to levels experienced in 2013, and expect their margins will improve.”
Capital expenditures, a major driver in the U.S. economy, are expected to increase by 8 percent in the manufacturing sector and by 4.6 percent in the non-manufacturing sector, according to the ISM. Manufacturing expects that its employment base will grow by 2.4 percent, while non-manufacturing expects employment growth of 2.1 percent.
Executives are not without concerns, however. The ISM annual survey respondents report that the most challenging problems facing their businesses as they plan for 2014 are: domestic sales growth (32 percent); international sales growth (18 percent); healthcare reform uncertainty (14.6 percent); ongoing government shutdown and debt ceiling concerns (13.5 percent); government regulations (9.6 percent); healthcare costs (8.4 percent); inflation (3.4 percent); and taxes (0.6 percent).
In the manufacturing sector, respondents report operating at 80.3 percent of their normal capacity, up very slightly from 80.2 percent reported in April 2013, the ISM reported in a press release. Purchasing and supply executives predict that capital expenditures will increase by 8 percent in 2014 over 2013, compared to a 12.3 percent increase reported for 2013 over 2012.
Survey respondents also forecast that they will increase inventories by 0.9 percent to support their planned level of sales in 2014. Manufacturers have an expectation that employment in the sector will increase by 2.4 percent in 2014, while labor and benefit costs are expected to increase an average of 2.3 percent. Manufacturing purchasers are predicting growth in exports and imports in 2014. Respondents also expect the U.S. dollar to strengthen on average against the currencies of major trading partners.
The panel also predicts the prices they pay for raw materials will increase 1.2 percent during the first four months of 2014, and will increase an additional 0.4 percent during the balance of the year, with an overall increase of 1.6 percent for 2014. This compares to a reported 0.9 percent increase in raw materials prices for 2013 compared with 2012.
The panel also indicated that supply chain management practices will be improved in 2014 using the following strategies, listed in order: strategic sourcing/supply base rationalization; process and information systems improvements; supplier relationship management; inventory management and control; and improved cross-functional planning.