The U.S. manufacturing sector is expected to expand for the remainder of 2017 while the pace of offshoring appears to be abating. Sixty-four percent of the U.S. purchasing and supply chain executives polled for the Institute for Supply Management’s Semiannual Economic Forecast predict their revenue will grow by 8.5 percent over 2016, while 12 percent expect a 9.6 percent decline. The overall average calls for 4.4 percent revenue growth in the manufacturing sector for 2017.
This current prediction is 0.2 percentage point below the December 2016 forecast of 4.6 percent revenue growth for 2017, but is 3.5 percentage points above the actual revenue growth reported for all of 2016, according to the ISM. “With 17 of the 18 industries within the manufacturing sector predicting revenue growth in 2017, when compared to 2016, U.S. manufacturing continues to move in a positive direction,” said Bradley J. Holcomb, chair of the ISM Manufacturing Business Survey Committee.
With operating capacity at 82.5 percent, an expected capital expenditure increase of 5.2 percent, an increase of 2.5 percent for prices paid for raw materials, and employment expected to increase by 1.3 percent by the end of 201, manufacturing is positioned to grow revenues while managing costs through the remainder of the year, according to the ISM. Moreover, most respondents -- 71.6 percent -- are staying put for 2017: 18.5 percent say they are actively offshoring and 9.9 percent say they are actively re-shoring.
Among companies that are offshoring the majority – 81.4 percent-- are still seeking cost advantages in foreign countries. Only 7 percent of companies are moving offshore due to a shortage of usable plant or asset capacity in the U.S.
Employment, however, is only expect to grow by 1.3 percent over 2016 levels. Thirty-five percent of respondents expect employment to be 6.3 percent higher, while 12 percent of respondents predict employment to be lower by 7.3 percent. The remaining 53 percent of respondents expect their employment levels to be unchanged for the remainder of 2017. Although the Semiannual Forecast did not specifically ask for feedback, respondents earlier in the year cited a lack of skilled workers as a reason for not hiring new workers.
The November 2016 election did not have a significant impact on manufacturers’ capital expenditure plans for 2017, although a 5.2 percent increase is considerably higher than the 0.2 percent increase predicted by the panel in the December 2016. A little more than 74 percent of respondents have not changed their capex plans since the election; 19.7 percent are increasing spending. Only 6 percent lowered their capex expectations. Among companies that are increasing capex, 71.7 percent are doing so due to the general business outlook.
As the prices of raw materials have increased over the past 6 months, manufacturers have begun to pass increased costs on to their customers. However, only 18 percent of respondents believe they won’t lose business to a competitor if they raise prices; 21.7 percent are less certain of their pricing leverage. Almost 47 percent of manufacturers said their pricing leverage is unchanged from 2016. Very few companies are concerned about their supply chain’s ability to meet their needs this year—97 percent expect their supply chain can adequately service them for the remainder of 2017.
When asked to predict 2017 price changes, 64 percent of respondents expect the prices they pay to increase by 4.8 percent for the full year of 2017. At the same time, 13 percent anticipate decreases averaging 4.5 percent. Including the 23 percent who expect no change in prices, survey respondents expect net average prices to increase by 2.5 percent for the entire year 2017, indicating that prices are expected to rise 0.3 percentage point over the remainder of the year.