ISM: Manufacturing Capital Spending to Drop 2.1% in 2020

Though capital spending is forecasted to decrease, all 18 of ISM's manufacturing sectors forecast higher 2020 revenues than in 2019.

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The Institute for Supply Management released a summary of its December 2019 Semiannual Economic Forecast on Dec. 9, showing that manufacturers generally expect a modest decrease in 2020 capital spending after considerable growth in 2019 spending.

ISM’s survey data from a panel of purchasing and supply executives found that capital expenditures are expected to decrease by 2.1 in the manufacturing sector after 6.4 percent growth in 2019, while spending is forecasted to increase 3.4 percent in the non-manufacturing sector.

ISM found that the overall manufacturing sector is optimistic about growth in 2020 as revenues are expected to increase in all manufacturing industries, with 58 percent of respondents expecting higher 2020 revenues than in 2019. Respondents expect a 4.8 percent net increase in overall revenues for 2020, compared to a 1.9 percent increase predicted for 2019 over 2018 revenues.

The 18 manufacturing industries from ISM’s survey are, in order of expected growth: Fabricated metal products; Food; Beverage & Tobacco Products; Apparel, Leather & Allied Products; Paper Products; Furniture & Related Products; Chemical Products; Wood Products; Computer & Electronic Products; Miscellaneous Manufacturing; Machinery; Transportation Equipment; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Primary Metals; Printing & Related Support Activities; Textile Mills; Petroleum & Coal Products; and Nonmetallic Mineral Products.

Meanwhile, the non-manufacturing sector also indicated that 17 of its industries will see higher revenues.

On the employment side, manufacturing expects that its employment base will grow a marginal 0.1 percent, while ISM notes the outlook for the next 12 months is predominantly growth-oriented.

"Manufacturing purchasing and supply executives expect to see growth in 2020,” said Timothy Fiore, CPSM, C.P.M., and chair of the ISM Manufacturing Business Survey Committee. “They are optimistic about their overall business prospects for the first half of 2020, with business continuing to expand through the second half of 2020. Manufacturing experienced eight consecutive months of growth from December 2018 through July 2019. However, manufacturing contracted during the period from August 2019 through November 2019. This resulted in an average PMI of 51.8 percent, as compared to 59.2 percent for the 12 months ending November 2018, as reported in the monthly Manufacturing ISM Report On Business. Respondents expect raw materials pricing pressures in 2020 to increase and expect profit margins to improve in 2020 over 2019. Manufacturers are also predicting growth in both exports and imports in 2020.”

Manufacturing respondents reported an overall operating rate of 83.7 percent of their normal capacity, down 0.5 percentage points from May 2019.

The manufacturing panel predicts the prices paid for raw materials will increase by 0.4 percent during the first five months of 2020, with an overall increase of 1.1 percent for 2020. This compares to a reported 0.7 percent increase in raw materials prices for 2019 compared with 2018.

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