The Institute of Supply Management (ISM) has released its Semiannual Economic Forecast report of the U.S. market, covering both manufacturing and non-manufacturing sectors. This, of course, is the second semiannual report released in 2017, the first of which was released back in May. As you may already know, these reports provide insight into the current and future state of the U.S. economy. So, how does the economy fare according to the ISM’s latest forecast?
The ISM’s Semiannual Economic Forecast predicts strong growth for the U.S. manufacturing sector at 5.1% in 2018. To put that number into perspective, the 2017 estimate was 4.1% When ISM researchers surveyed manufacturers, 70% of respondents said they were expecting stronger growth in 2018. More specifically, manufacturing companies expect stronger growth than last year in 16 of the 20 individual sectors.
Additionally, capital expenditures in the U.S. manufacturing industry is also expected to increase. According to ISM’s report, manufacturing-related capital expenditures will grow by 2.7% in 2018. That’s a decent amount lower than the 8.7% increase manufacturers saw from 2016 to 2017. In May, however, the ISM predicted an increase of 5.2% in manufacturing-related capital expenditures.
On the other hand, prices for raw materials are expected to increase by 1.3% in Q1 2018. That nominal increase, however, may be offset by the dollar’s rising value against foreign currencies.
Perhaps the most important figure in the ISM’s report is the diffusion index. This is the 12-month outlook for the country’s manufacturing sector, revealing whether it’s growing or contracting. The ISM’s diffusion index for the American manufacturing industry in 2018 is 81.5 — a significant increase from its current index of 67.5. Any index rating over 50 signals positive growth, whereas any rating below 50 signals contraction.
When speaking about the latest semiannual report, ISM’s Tim Fiore shared some insight into the findings while maintaining an optimistic view about the American manufacturing market. “Everything looks to be set up pretty well,” said Tim Fiore, chair of the ISM Business Survey Committee. “There are good gains intact and also expected for 2018 and things, like capital expenditure projections, got better as the year went on. All in all, things look pretty good.
So, what’s driving the manufacturing industry’s growth? Fiore cited new orders as being the greatest influencer. “It is the single biggest driver and has been over 60 for the last four months. Based on feedback from our panel, growth in the general economic outlook without being tied to anything specific was also noted.”