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“Overall, [the ISM] sees a good general forecast for 2019,” said the ISM’s manufacturing business survey committee chair Tim Fiore. “There’s a little less momentum than in 2018, but capital expenditures, employment and production capacity are all expected to grow.” Capex is expected to increase by 6 percent in 2019; production capacity will grow by 4.7 percent; and employment will expand by 2.4 percent.
“The employment forecast is at the highest rate we have seen in several years,” Fiore added.

Source: Institute for Supply Management
Predictions are significantly less rosy on the international front because of tariffs. Tariffs haven’t impacted the supply chain as much as expected, the ISM found in its Semiannual Economic Forecast, but they are causing some long-term shifts. More than 65 percent of manufacturers polled are seeking new sources of supply in 2019 — data that raised some eyebrows, Fiore said.
“It’s pretty clear that this pertains to imports, as companies try to avoid tariffs on imported materials,” he explained. “We didn’t specifically ask where those new sources were located, but a change like this can’t be undone in just a couple of years. We just don’t see this as a positive trend.”
“Another thing that jumped out at me is a decline in global trade,” Fiore added. “In the past, optimism about U.S. exports was around 67 percent. Now that’s at 38. Exports are a large part of the manufacturing economy so in effect we are seeing the export market shut down.”
On import side, roughly 60 percent of manufacturers had a positive view in 2016. That percent has declined to 29.
U.S. manufacturers also expect the dollar will be stronger in 2019, which will further complicate trade. Nearly 67 percent of respondents said the dollar will strengthen against foreign currencies — up 8.5 percent over the forecast average of 58.2 percent for 2018.
Manufacturing workers saw wages increase in 2018 — a trend that will continue next year. Sixty-four percent of respondents expect increased labor and benefit costs and expect them to grow by an average of 4 percent for all of 2019, while the 3 percent forecasting lower costs see them decreasing by an average of 5.8 percent. Including the 33 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 2018 and the end of 2019.
Both Fiore and the ISM’s non-manufacturing sector chair, Anthony S. Nieves, said employment levels in 2018 would have been higher if not for a shortage of skilled labor. Manufacturers are not training workers — they are hiring skilled labor away from their competitors. “That means the labor pool has not increased,” said Nieves.

Source: Institute for Supply Management
Highlights of the Semiannual Forecast include:
- Manufacturers’ operating rate is currently at 85.2 percent.
- Production capacity increased by 4 percent in 2018.
- Production capacity is expected to increase by 4.7 percent in 2019.
- Capital expenditures increased 13.4 percent in 2018.
- Capital expenditures are expected to increase 6 percent in 2019.
- Prices paid increased 5.1 percent in 2018.
- Overall, 2019 prices paid are expected to increase 3.3 percent.
- Labor and benefit costs are expected to increase 2.5 percent in 2019.
- Manufacturing employment is expected to increase 2.4 percent in 2019.
- Expect growth in U.S. exports in 2019.
- Expect growth in U.S. imports in 2019.
- Manufacturing revenues are up 5.8 percent in 2018.
- Manufacturing revenues are expected to increase 5.7 percent in 2019.
- The U.S. dollar is expected to strengthen versus all major trading partner currencies in 2019.
Source: Institute for Supply Management
Overall, manufacturing supply managers have an optimistic outlook, with 84 percent of respondents predicting 2019 will be the same as or better than 2018.
The ISM typically includes time-sensitive questions on its semiannual surveys. This year, the focus was on tariffs, which haven’t hampered manufacturing as much as expected. Almost 73 percent of respondents said tariffs or counter tariffs have not impacted their ability to export or meet revenue goals; 27.2 percent said they did. More than half of the companies surveyed (52.1 percent) said they didn’t expect to change their global footprint because of tariffs; 47.9 percent said they do.
The first half of 2019 is expected to be stronger for manufacturers than the second half: 44 percent of respondents predict it will be better, 13 percent predict it will be worse, and 41 percent expect no change.
Overall, the U.S. manufacturing sector is “bouncing along the top,” said Fiore. “In 2018, manufacturing experienced 12 straight months of growth from December 2017 through November 2018, resulting in an average PMI of 59.2 percent, as compared to 57 percent for the 12 months ending November 2017.”