REPORT: Steady Economic Growth Expected in 2018
Economic growth in the U.S. will continue in 2018, according to the nation’s purchasing and supply management executives in the December 2017 Semiannual Economic Forecast. Expectations are for a continuation of the economic recovery in 2018 that began in mid-2009. The report was delivered by the Business Survey Committee of the Institute for Supply Management (ISM), which delivers monthly economic reports.
The manufacturing sector is optimistic about growth in 2018, with revenues expected to increase in 16 manufacturing industries, and the non-manufacturing sector indicates that 17 of its industries will see higher revenues.
Capital expenditures, a major driver in the U.S. economy, are expected to increase by 2.7 percent in the manufacturing sector and increase by 3.8 percent in the non-manufacturing sector in 2018. Manufacturing expects that its employment base will grow by 1.2 percent, while non-manufacturing expects employment growth of 1.5 percent.
Expectations for 2018 are positive, as 70 percent of survey respondents expect revenues to be greater in 2018 than in 2017. The panel of purchasing and supply executives expects a 5.1-percent net increase in overall revenues for 2018, compared to a 4.6-percent increase predicted for 2017 over 2016 revenues.
The 16 manufacturing industries expecting revenue improvement in 2018 over 2017 include fabricated metal products; electrical equipment, appliances & components; nonmetallic mineral products; machinery; miscellaneous manufacturing; computer & electronic products; transportation equipment; plastics & rubber products; primary metals; paper products; textile mills; chemical products; food, beverage & tobacco products; furniture & related products; printing & related support activities; and petroleum & coal products.
In 2017, the manufacturing sector experienced 11 consecutive months of growth from January through November, resulting in an average PMI of 57.4, as compared to 51.5 for 2016, as reported in the monthly Manufacturing ISM Report On Business. A reading above 50 percent indicates that the manufacturing economy is generally expanding, while below 50 percent indicates that it is contracting.
Respondents expect raw materials pricing pressures in 2018 to increase, and expect their profit margins will improve in 2018 over 2017. Manufacturers are also predicting growth in both exports and imports in 2018.
In the manufacturing sector, respondents also report operating at 85.8 percent of their normal capacity, up 3.3 percentage points from the 82.5 percent reported in May 2017. Purchasing and supply executives predict that capital expenditures will increase by 2.7 percent in 2018 over 2017, compared to the 8.7 percent increase reported for 2017 over 2016.
Manufacturers have an expectation that employment in the sector will grow by 2.3 percent in 2017 relative to December 2016 levels, while labor and benefit costs are expected to increase an average of 2.1 percent in 2018. Respondents also expect the U.S. dollar to strengthen against all seven currencies of major trading partners in 2018, as was the case in 2017.
The panel predicts the prices paid for raw materials will increase by 1.3 percent during the first four months of 2018, and will increase an additional 0.5 percent during the balance of the year, with an overall increase of 1.8 percent for 2018. This compares to a reported 2.1 percent increase in raw materials prices for 2017 compared with 2016.
Fifty-nine percent of non-manufacturing supply management executives expect their 2018 revenues to be greater than in 2017. They currently expect a 6 percent net increase in overall revenues for 2018 compared to a 5.7 percent increase reported for 2017 over 2016 revenues. The 17 non-manufacturing industries expecting revenue improvement in 2018 over 2017 include information; professional, scientific & technical services; construction; agriculture, forestry, fishing & hunting; management of companies & support services; retail trade; real estate, rental & leasing; transportation & warehousing; wholesale trade; other services; health care & social assistance; arts, entertainment & recreation; finance & insurance; educational services; accommodation & food services; public administration; and mining.
Non-manufacturing supply managers report operating at 91.9 percent of their normal capacity, higher than the 86.9 percent reported in May 2017. They are optimistic about continued growth in the first half of 2018 compared to the second half of 2017, even though there is a projected decrease in growth rate for capital reinvestment. They forecast that their capacity to produce products and provide services will rise by 3.4 percent during 2018, and capital expenditures will increase by 3.8 percent from 2017 levels. Non-manufacturers also predict their employment will increase by 1.5 percent during 2018.”
Respondents in non-manufacturing industries expect the prices they pay for materials and services will increase by 2.2 percent during 2018. They also forecast their overall labor and benefit costs will increase 2.6 percent in 2018. Profit margins are reported to have decreased in the second and third quarters of 2017, and respondents expect them to increase between now and May 2018.