Purchasing Execs Bullish on 2017

Purchasing and supply management executives expect they’ll be buying more from their suppliers next year as the U.S. economy continues the recovery that began in 2009.

More than two-thirds – 67 percent -- of manufacturing respondents to the Institute for Supply Management’s (ISM) Semiannual Economic Forecast expect their 2017 revenue will exceed 2016’s. The ISM’s panel of purchasing and supply executives expects a 4.6 percent net increase in overall revenues for 2017, compared with a 0.9 percent increase reported for 2016. Sixteen of 18 manufacturing industries – including electronics -- are expecting revenue improvement in 2017.

Manufacturers also expect that capital expenditures – a major driver in the U.S. economy — will grow 0.2 percent next year and their employee base will expand by 0.6 percent. However, they also anticipate labor and benefit costs will increase an average of 2.5 percent.; and that the dollar will strengthen against all seven currencies of major trading partners in 2017.

“Manufacturing purchasing and supply executives expect to see growth in 2017. They are optimistic about their overall business prospects for the first half of 2017, and are slightly more optimistic about the second half of 2017," said Bradley J. Holcomb, chair of the ISM Manufacturing Business Survey Committee.

In 2016, manufacturing experienced eight months of growth overall from January through November, including three consecutive months of growth from September through November, resulting in an average PMI of 51.2 for the first 11 months of 2016, Holcomb said. “Respondents expect raw materials pricing pressures in 2016 to be low, and expect their profit margins will improve in 2017 over 2016. Manufacturers are also predicting growth in both exports and imports in 2017,” he said.

When it comes to trade policy, however, ISM panelists don’t seem to favor free trade agreements (FTAs). The ISM asked panelists whether trade liberalization with Japan and/or Europe would help their businesses. The responses from the manufacturing panel, with percentages of the total number of responses noted, were “Yes, with Europe” (13.6 percent), “Yes, with Japan” (5.6 percent), “Yes, both” (31.5 percent), and “No” (49.3 percent).

Although a strong U.S. dollar typically depresses U.S. exports, 52.6 percent of ISM panelists said the dollar’s impact on their profits in 2016 was “negligible.” Only 11.3 percent said the impact was positive; 17.8 percent said negative, and 18.3 percent were unsure. Another development on the world stage — depressed oil prices — favorably affected U.S. manufacturers. For 2016, 48.6 percent of manufacturers said low oil prices had a positive impact on their profits; 19.6 percent said negative; 22.4 percent said negligible and 9.3 percent were unsure.

This indicates that, even though some respondents were unsure of the impact of depressed oil and related commodity prices, over 70 percent felt that these depressed prices did not have a negative impact on their business, according to the ISM.

The ISM also surveyed panelists about the combined net impact on their organization’s profits thus far this year related to the strength of the U.S. dollar and the depressed prices of oil. The responses, with percentages of the total number of responses noted, were “negative” (18.9 percent), “negligible” (28.8 percent), “positive” (35.4 percent), and “unsure” (17.0 percent). This indicates that, even though some respondents were unsure of the combined impact of a strong U.S. dollar and depressed oil and related commodity prices, nearly 65 percent felt that these combined factors did not have a negative impact on their business, said the ISM.

Other 2017 forecasts from the ISM included:

Capex

Purchasing and supply executives expect capital expenditures to increase only 0.2 percent in 2017. The 38 percent of respondents who predict increased capital expenditures in 2017 indicate an average increase of 21.5 percent, while the 21 percent who said their capital spending would be reduced predict an average decrease of 37.7 percent. Forty-one percent said they expect to spend the same in 2017 as in 2016.

Prices

Forty-seven percent of purchasing and supply managers expect the prices they pay to increase in early 2017 by an average of 3.8 percent. At the same time, 22 percent anticipate decreases averaging 4.2 percent. Including the 31 percent who expect no change in prices in the first four months of 2017, purchasers expect the net average overall price change to increase 0.9 percent for the first four months of 2017.

Labor and benefit costs

Purchasing and supply executives expect higher overall labor and benefit costs for 2017. Sixty-eight percent of respondents expect increased labor and benefit costs and expect them to grow by an average of 3.9 percent for all of 2017, while the 2 percent forecasting lower costs see them decreasing by an average of 5.8 percent. Including the 30 percent of respondents who believe costs will remain the same, the overall net rate of increase is expected to be 2.5 percent between the end of 2016 and the end of 2017.

Employment

ISM's Manufacturing Business Survey Committee members report that manufacturing employment decreased 0.2 percent in 2016 relative to 2015, and forecast that employment will increase by 0.6 percent, on average, for the full year of 2017 relative to December 2016. Thirty-four percent of respondents expect employment to be 5.9 percent higher in 2017, while 15 percent predict employment to be lower by 9.9 percent. The remaining 51 percent of respondents expect their employment levels to be unchanged in 2017. The 11 industries predicting increases in employment in 2017 — listed in order

Exports

The responses for this semiannual report indicate purchasers see increases in new export orders for the first half of 2017. Of the 84 percent of respondents who export, 42 percent predict an increase (41 percent moderate and 1 percent substantial) over the next half-year. Nine percent of respondents (8 percent moderate and 1 percent substantial) predict a decrease in their exports, and 49 percent anticipate no change in exports over the next half-year.

Imports

Purchasers expect increases in imports in the first half of 2017. Of the 87 percent of purchasers who reported they import, 36 percent predict an increase in their imports over the next half-year (33 percent moderate and 3 percent substantial), while 16 percent predict a decrease in imports of materials (14 percent moderate and 2 percent substantial). Forty-eight percent of survey respondents expect no change in imports in the first half of 2017.

Revenue

Manufacturing survey respondents forecast that business revenues for 2017 will be stronger than in 2016. The 67 percent of respondents forecasting better business revenues in 2017 than in 2016 estimate an average increase of 8.5 percent in their organizations’ revenues. This contrasts with an average decrease of 10.8 percent forecast by the 9 percent who predict lower business revenues in 2017. Including the 24 percent who see no change in 2017, the forecast for overall net increase in business revenues for 2017 over 2016 is 4.6 percent.

12-month outlook

Compared to the outlook for 2016 reported in December of 2015, survey respondents this year are somewhat more optimistic about the outlook for 2017. Forty-seven percent of respondents believe 2017 will be better than 2016. Forty-one percent of respondents believe 2017 will be the same as 2016, and 12 percent believe 2017 will be worse than 2016.

The full report is available here.