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Purchasing and supply executives expect manufacturing growth will continue for the rest of 2021 with several metrics – capacity, capital expenditures and revenue – exceeding forecasts of late 2020. There is hope that the corner has been turned on the coronavirus pandemic, according to the Institute for Supply Management, and both the U.S. manufacturing and services sectors are signaling expansion.
Industry sentiment for the electronics components market remained strong in April, according to the ECIA. The sentiment looking toward May softened modestly compared with the prior month. However, this indicates a decrease in the rate of market acceleration and is not an indication of weakening growth.
Overall, U.S. manufacturers' revenue for 2021 is expected to increase by 7.2 percent, according to the ISM’s Spring 2021 Semiannual Economic Forecast. “This is 0.3 percentage point higher than the December 2020 forecast of 6.9 percent, and 8.5 percentage points higher than the 1.3-percent decrease reported for 2020 over 2019,” said Tim Fiore, chair of the ISM’s manufacturing survey committee.
Source: Institute for Supply Management, Spring 2021
A majority -- 59 percent -- of survey respondents said that revenues for 2021 will increase 13.8 percent over 2020. Only 8 percent say revenues will decrease, on average, 13 percent, and 33 percent indicate no change.
Factories are operating at 88.3 percent of normal capacity, indicative of the easing of Covid-19 restrictions. At the same time, manufacturers report difficulty in finding skilled workers and delays or shortages of raw materials and components.
Production capacity is expected to increase 6.6 percent in 2021 and the demand to increase capacity is stronger than December 2020 expectations. Capital expenditures are expected to increase 8.7 percent in 2021 – a level not seen since 2018, said Fiore.
Prices have also seen a sharp uptick since the end of last year. Prices paid increased 8.3 percent through May 2021, and prices of raw materials are expected to increase a total of 8.1 percent for all of 2021. However, that’s a decrease of 0.2 percent in prices for the rest of the year.
Given ongoing high demand in the electronics market, component lead times will continue to expand and prices will continue to rise, said the ECIA.
Manufacturing employment is expected to increase marginally, by 2.8 percent, in 2021. Manufacturers continue to cite their inability to hire or retain employees as a challenge to further expansion. Current unemployment benefits are keeping some people out of the workforce, said Fiore; others are hesitant to return to work because of Covid-19. Workers that are employed are benefiting from switching jobs as wages increase.
“With all 18 manufacturing-sector industries predicting revenue growth in 2021, panelists forecast that recovery will continue the rest of the year. The sectors’ responses were consistent with the industry-performance reports in April 2021,” said Fiore.
With operating rates at 88.3 percent; an expected capital-expenditures increase of 8.7 percent; an expected increase of 8.1 percent in prices paid for raw materials; and an expected employment increase by 2.8 percent by the end of 2021, manufacturing continues its comeback from the turmoil of 2020, he added.
ISM reports the services sector is also rebounding. As consumers resume entertainment, recreation and travel activities, pressure on manufacturing could ease. This, in turn, could help offset cargo capacity limits, which have plagued the shipping industry, and allow ports to catch up on their backlogs.
However, freight rates remain extremely high as capacity is maxed out and demand remains at peak levels, said freight marketplace Freightos. Although U.S. retailers are now spending more on inventory than in 2019, those items continue to fly off the shelves. This means that even if consumer demand for goods declines as services rebound, retail restocking will keep ships full and rates up for some time longer.
ISM services respondents currently expect a 5.4-percent net increase in overall revenues, which is 3.8 percentage points higher than the 1.6-percent increase forecast in December 2020. Forty-eight percent of respondents say that revenues for 2021 will increase, on average, 15 percent over 2020. Meanwhile, 11 percent say their revenues will decrease, on average, 16.6 percent, and 41 percent indicate no change.
Services companies are currently operating at 89.4 percent of normal capacity. Supply managers have indicated that prices are projected to increase 4.9 percent over the year, reflecting increasing inflation. Employment is projected to increase 2.4 percent. Sixteen of 18 industries are forecasting increased revenues, compared to the 12 industries that predicted increases in December 2020.
In the December 2020 forecast, respondents predicted an increase of 2.5 percent in prices paid during the first four months of 2021; they report prices increased by 8.3 percent. The 74 percent who say their prices are higher now than at the end of 2020 report an average increase of 11.4 percent, while the 2 percent who report lower prices indicate an average decrease of 4.8 percent. The remaining 23 percent report no change for the period.
