Economy

ISM Survey Reveals Labor and Tariff Concerns

May 8, 2018

The manufacturing sector can expect positive growth through the end of 2018, predicts the Institute for Supply Management in its Spring 2018 Semiannual Economic Forecast.

Manufacturing revenue is expected to increase 6.6 percent overall for 2018, an increase from the December 2017 estimate of 5.1 percent for this year.

Manufacturers were much more optimistic about capital expenditures in the latest survey. A forecast for a 10.1 percent increase during 2018 compared to 2017 was significantly higher than the 2.7 percent increase originally predicted for this year in December’s ISM survey.

The manufacturing capacity utilization rate is currently averaging 85.8 percent, the same as December and an increase from 82.5 percent reported in May 2017. Production capacity is expected to increase 4.9 percent in 2018, up from December’s prediction of 2.7 percent.

In December’s forecast, prices paid for raw materials were predicted to rise 1.3 percent in the first four months of 2018. Instead, prices increased by 4.8 percent, said ISM. When asked where prices are headed for the rest of the year, survey respondents predicted a 0.2 percent increase for the remainder of the year and a 5.0 percent overall net increase for 2018.

Manufacturing employment levels are expected to increase 1.8 percent by the end of 2018, compared to the end of 2017.

“With 15 of the 18 manufacturing sector industries predicting revenue growth in 2018, when compared to 2017, U.S. manufacturing continues to move in a positive direction. However, finding and onboarding qualified labor and being able to pass on raw material price increases will ultimately define manufacturing revenues and profitability,” said Timothy Fiore, chairman of the ISM Manufacturing Business Survey Committee.

In a series of extra questions, 77.9 percent of panelists said they experienced difficulty in finding workers to fill open positions; 53.3 percent raised wages to recruit new hires.

When asked about capital expenditures in the past six months, 35.5 percent said they had increased spending plans due to the general business outlook (68.9 percent), tax reform (14.4 percent), potential regulatory reform (2.2 percent), and other (14.4 percent).

Nearly three-fourths (73.9 percent) of panelists expect that tariffs will result in higher prices for the goods they produce. The average price increase anticipated was 5.4 percent and the median 3.0 percent. Slightly more than half (57.5 percent) expect tariffs will cause delays and disruptions to their supply chain.