






U.S. manufacturers are surprisingly upbeat about their prospects in 2020, anticipating growth in revenue, profitability, imports and exports. The outlook isn’t so positive for employment and capital expenditures, which will remain flat or decline next year, according to the Institute for Supply Management’s semiannual forecast.
Manufacturers expect revenue will grow 4.8 percent next year – a particularly good sign good in light of 2019, said Tim Fiore, chair of the ISM’s manufacturing business committee. “That’s a positive – and surprising — since 2019’s numbers were nowhere near what was expected.“ In May, manufacturers predicted revenue would increase of 4 percent; the year is ending closer to 1.9 percent growth.
The ISM releases semiannual forecasts in May and December of each year.
“Overall, I think it is a good forecast,” Fiore said. “Business will continue to expand through the end of 2020.”
However, that expansion will occur without capital investment – forecast to drop by 2.1 percent – or additional labor. Employment growth decreased by 0.6 percent in 2019 and will expand only 0.1 percent next year. The pullback on capex is the first in 11 years.
Manufacturers are not feeling pressure to invest in 2020, Fiore said. “I think the industry is saying it doesn’t need to add employees, or they are happy with the current level.” Labor costs are expected to rise by only 0.7 percent between now and the end of 2020.

Source: Getty Images
“I think when people are in short supply you see wage growth, and we’re not seeing that from forecast,” Fiore said. “That’s a good indicator there is not strong demand for employment growth.”
At the other end of the spectrum, capex in 2019 exceeded expectations so manufacturers will ride that wave next year, said Fiore. In May, manufacturers predicted 5.9 percent capex growth; the year will close closer to 6.4 percent. “I think what we are seeing is a capex normalization after two robust years,” Fiore added.
Both efforts will contribute to manufacturers’ profitability, which will also rebound next year. Average profit margins decreased in Q2 and Q3 of this year, with 25 percent of ISM respondents reporting an increase; 39 percent reporting a decrease; and 36 percent reporting no change. Expectations are higher between now and May 2020, as 33 percent of respondents forecast better profit margins, 21 percent predict lower profit margins, and 46 percent anticipate no change.
Trade & tariffs
Manufacturers are unlikely to open their wallets until they see clarity on global trade. Tariffs have already disrupted with supply chain, with 77 percent of ISM respondents changing, of expecting to change, their sources of supply.
“Trade continues to weigh on the supply community,” Fiore said, “but not as much as before. I think we are at the level of maximum impact of tariffs — before any new tariffs on France, Argentina and Brazil. Manufacturers are adjusting, and it doesn’t seem there will be relief until the administration stops using tariffs as a multipurpose weapon.”
Morey Corp., an electronics design and manufacturing firm near Chicago, said its tariff-related activity has “stabilized” in the last few months. “Tariffs are just accepted as a part of doing business,” George Whittier, president and COO of Morey, told EPSNews. “There are fewer arguments in the supply chain and discussions are taking up less air then they used to.”
Both imports and exports are expected to bounce back 2020, according to the ISM – 77 percent of respondents expect to increase their exports. Of those, 38 percent predict an increase over the next six months; 14 percent expect a decrease; and 48 percent anticipate no change.
Electronics and chemical companies are expected to lead in the export rebound — “They’re feeling pretty positive about things,” said Fiore. Technology is always advancing, he added, requiring upgrades or replacement of equipment.
Of the 87 percent of purchasers that import products, 31 percent predict an increase over the next six months; 24 percent expect a decrease, and 45 percent expect no change.
Overall, U.S. manufacturers report:
- Operating rate is currently at 83.7 percent.
- Production capacity increased by 3.1 percent in 2019.
- Production capacity is expected to increase by 3.3 percent in 2020.
- Capital expenditures increased 6.4 percent in 2019.
- Capital expenditures are expected to decrease 2.1 percent in 2020.
- Prices paid increased 0.7 percent in 2019.
- Overall, 2020 prices paid are expected to increase 1.1 percent.
- Labor and benefit costs are expected to increase 0.7 percent in 2020.
- Manufacturing employment is expected to increase 0.1 percent in 2020.
- Expect growth in U.S. exports in 2020.
- Expect growth in U.S. imports in 2020.
- Manufacturing revenues are up 1.9 percent in 2019.
- Manufacturing revenues are expected to increase 4.8 percent in 2020.
- The U.S. dollar is expected to strengthen versus all major trading partner currencies in 2020.
“One takeaway,” said Fiore, “is manufacturers are dealing with uncertainty. One day things are ‘normal,’ and new tariffs will show up the next day. Uncertainty will continue to impact the market’s growth.”