As was the case in its previous edition in December, the manufacturing and services sectors remain on diverging paths, to a certain extent, in May. One common theme the sectors share, according to the Institute for Supply Management’s (ISM) May 2024 Semiannual Economic Forecast, which was issued today, is that growth is expected over the balance of the year, albeit at reduced rates.
Data for this report is based on feedback from U.S.-based purchasing and supply chain executives in manufacturing and non-manufacturing sectors.
For manufacturing, ISM is estimating revenues to see a 2.1% increase in 2024, a 3.5% decrease from the December forecast, with 44% of the report’s respondents expecting revenues to rise 8.6%, on average, annually. And 14% expect revenues to fall 12.3%, on average, with 42% expecting revenues to be flat. ISM also noted that 12 of the 18 manufacturing it tracks are calling for revenue improvement in 2024, including: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Transportation Equipment; Computer & Electronic Products; Chemical Products; Nonmetallic Mineral Products; Primary Metals; Textile Mills; Furniture & Related Products; Fabricated Metal Products; Electrical Equipment, Appliances & Components; and Paper Products.
Manufacturing capital expenditures (capex) are projected to increase 1% in 2024, well below December’s 11.9% projection, with 24% of respondents predicting a 19.8% 2024 increase, on average. And manufacturing production capacity is pegged to see a 2.4% increase in 2024, up from a reported 0.7% 2023 increase and an expected 7.8% 2024 increase.
Other key manufacturing findings include:
- prices paid increased 1.6% through April;
- prices of raw materials are expected to increase a total of 1.9% for all of 2024, indicating an expected increase of 0.3 basis points for the remainder of 2024;
- prices are expected to increase 3.2%, on average, in 2024, compared to the end of 2023;
- manufacturing employment is expected to increase 0.3% in 2024; and
- the manufacturing operating rate, at 82.8 of normal capacity is 0.2% lower than December’s 2024 estimate
“Business on the manufacturing side continues to grow as we close on half one, performing better than the end of 2023,” said Tim Fiore, Chair of the ISM Manufacturing Business Survey Committee, on a media call earlier today. “However, our panelists have responded less optimistically than December 2023’s forecast of 2024, and it puts the this forecast much better aligned with our year-to-date PMI index numbers which have been on a weak growth profile.”
Fiore added that this forecast feels like late 2016, when manufacturing started to grow just before the election, which he called a decent cycle of manufacturing economic growth. He also said it feels like late-2019, prior to the pandemic, as the manufacturing sector started to slow in August 2019, entering a contraction cycle six months before the pandemic hit.
Services outlook: ISM member panelists expect 2024 services-based economy revenues to increase 2.9% annually, below the 6.9% December estimate, with 36% of respondents expecting revenues, on average, to increase 10.3%.
The report stated that thirteen of 18 services project revenue increases in 2024, including: Retail Trade; Mining; Transportation & Warehousing; Other Services; Management of Companies & Support Services; Accommodation & Food Services; Professional, Scientific & Technical Services; Construction; Wholesale Trade; Public Administration; Utilities; Information; and Finance & Insurance.
Services capex are expected to come in up 1.4% in 2024 compared to 2023, with 24% of panelists predicting for capex, on average, to increase 19.8%. And services capacity utilization is expected to come in at 88.6%, 2.1% above December’s reading.
Other key services findings include:
- production capacity is expected to increase 2.6% in 2023, down from December’s 4.1% estimate;
- prices are pegged to increase by 3.2%, on average, compared to the end of 2023, indicting expectations of continued inflation, and prices paid increased 2.3% through April 2024; and
- employment is expected to increase 0.8%;
Tony Nieves, Chair of the ISM’s Business Survey Committee, said on the call that when looking at services, it is a similar situation to manufacturing, in that there is some softening, in terms of what respondents are indicating, with projections for economic growth slow and steady.
“The Services PMI was in contraction territory in April,” he said. “This sector is always focused on being labor-intensive and doing more with less, especially coming out of the pandemic, with the operating rate at 91% in May 2023, then 86.5% in December, and now at 88.6%, which is still a good operating rate. We’re expecting this sector to grow in 2024.”
