2018 Manufacturing Outlook: Continued Industry Growth

Every six months, members of the Institute of Supply Management (ISM) survey 350 manufacturing executives from 18 different industries. ISM researchers use the survey results to produce a manufacturing index called PMI that helps them form predictions for monthly and semiannual forecasts. As of December 2017, the manufacturing industry has experienced growth for 15 months straight — and the forecast for the first months of 2018 shows that ISM researchers expect this growth to continue into the new year.

ISM predictions

According to the December edition of the 2017 ISM Semiannual Economic Forecast, ISM surveyors expect those in the manufacturing industry to see a 5.1% increase in revenue in 2018 with growth occurring in 80% of manufacturing sectors. Just as encouraging are the expected 2.7% growth in capital expenditures and the prediction of increased capacity utilization from 82.5% to 85.8%.

Survey respondents expect raw material costs to increase a total of 1.8% in 2018 with the greatest jump in prices occurring from January to April. They also expect, however, the increasing value of the dollar against major trading partners’ currencies will mitigate the increase in 2018.

2017 trends

In 2016, ISM researchers forecasted a 0.2% increase in capital expenditures for 2017. Instead, the industry saw an unexpected surge of 8.7% this year, according to the “ISM: Manufacturing Growth to Extend Into 2018” Advanced Manufacturing article. This number is expected to rise another 2.7% in 2018. While 2.7% may not look impressive, Tim Fiore, ISM Manufacturing Business Survey Committee chair, explains there are some underlying statistics worth noting. Six major manufacturing industries are among the 41% of the industry that expects to increase capital spending in 2018 — and the average increase is expected to be 20%. Capital expenditures could see even larger gains after tax cuts are passed.

Manufacturer response

With the manufacturing industry expected to continue functioning at almost 86% utilization capacity, according to the “ISM: Manufacturing Growth to Extend Into 2018” Advanced Manufacturing article, companies may continue to struggle to find competent employees to carry the load. In 2017, 64.7% of respondents to the ISM survey conveyed difficulty finding employees. While 44.4% addressed this difficulty by raising wages to attract quality applicants, another 44.4% instituted additional employee training to improve current workforce competency. In 2018, manufacturers may continue to raise wages in an effort to recruit and retain valuable workers.

2018 looks to follow 2017 as a year of economic growth for the manufacturing industry. Growth in the overall economy and the increase in new orders are likely to combine for a prosperous new year. Projected investments in capital expenditures show manufacturers are hopeful and excited about growth, and those able to acquire quality talent have a particularly strong outlook.

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