ISM Expects US Manufacturers to Increase Capital Spending 2.4% in 2021

It follows a 2.4 percent decline in 2020.

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TEMPE, AZ — Economic improvement in the United States will continue in 2021, say the nation's purchasing and supply management executives in the December 2020 Semiannual Economic Forecast. This expansion will continue a growth trend that began in June 2020, as indicated in the monthly ISM Report On Business. Revenues are expected to increase in 15 of 18 manufacturing industries and 12 of 18 services-sector industries. Capital expenditures are expected to increase by 2.4 percent in the manufacturing sector (after a 2.4-percent decline in 2020) and increase by 12.7 percent in the services sector. The manufacturing employment base is expected to grow by 2.5 percent following a decline of 2.8 percent in 2019. Growth in the second half (H2) of the year is projected to be stronger than in H1.

Institute For Supply Management LogoThese projections are part of the forecast issued by the Business Survey Committee of the Institute for Supply Management (ISM). The forecast was released today by Timothy R. Fiore, CPSM, C.P.M, Chair of the ISM Manufacturing Business Survey Committee, and by Anthony S. Nieves, CPSM, C.P.M., A.P.P, CFPM, Chair of the ISM Services Business Survey Committee.

Manufacturing Summary

Expectations for 2021 are positive, as 59 percent of survey respondents expect revenues to be greater in 2021 than in 2020. The panel of purchasing and supply executives expects a 6.9-percent net increase in overall revenues for 2021, compared to a 1.3-percent decrease reported for 2020. Fifteen of the 18 manufacturing industries expect revenue improvement in 2021, listed in order: Printing & Related Support Activities; Transportation Equipment; Nonmetallic Mineral Products; Apparel, Leather & Allied Products; Machinery; Computer & Electronic Products; Primary Metals; Plastics & Rubber Products; Fabricated Metal Products; Miscellaneous Manufacturing; Chemical Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Furniture & Related Products; and Paper Products.

"Manufacturing's purchasing and supply executives expect to see strong growth in 2021. They are optimistic about overall business prospects for the first half of 2021, with business continuing to expand through the second half and at higher rates. Manufacturing experienced seven consecutive months of growth from June through December 2020, with December's PMI® at its highest level since August 2018, the peak of the last manufacturing expansion. Respondents expect an increase in raw materials pricing pressures in 2021, as well as improved profit margins. Wages and employment will also return to growth. Manufacturers also predict growth in both exports and imports in 2021," says Fiore. 

In the manufacturing sector, respondents report operating at 85.7 percent of their normal capacity, up 9.8 percentage points from the 75.9 percent reported in May 2020. Purchasing and supply executives predict that capital expenditures will increase by 2.4 percent in 2021 over 2020, compared to the 2.4-percent decrease reported for 2020 over 2019. Manufacturers expect employment in the sector to grow by 2.5 percent in 2021 relative to December 2020 levels, while labor and benefit costs are expected to increase an average of 2.7 percent. Respondents also expect the U.S. dollar to weaken against six of the seven currencies of major trading partners in 2021; it is expected to strengthen relative to the Mexican peso.

The panel predicts the prices paid for raw materials will increase by 2.5 percent during the first five months of 2021, with an overall increase of 2.9 percent for 2021. This compares to a reported 2.8 percent decrease in raw materials prices between the end of 2019 and May of 2020.

OPERATING RATE

Manufacturing purchasing and supply executives report their companies are currently operating at 85.7 percent of normal capacity. This is a 9.8-percentage point increase when compared to May 2020 (75.9 percent) and an increase when compared to December 2019 (83.7 percent). The following 11 industries — listed in order — are operating at or above the average rate of 85.7 percent: Wood Products; Paper Products; Electrical Equipment, Appliances & Components; Chemical Products; Food, Beverage & Tobacco Products; Primary Metals; Apparel, Leather & Allied Products; Plastics & Rubber Products; Computer & Electronic Products; Fabricated Metal Products; and Furniture & Related Products.

PRODUCTION CAPACITY

Production capacity in manufacturing increased 0.5 percentage point in 2020, as 32 percent of purchasing and supply executives reported an average capacity increase of 11 percent, 19 percent reported an average decrease of 15.7 percent, and 48 percent reported no change. This compares to a predicted decrease in production capacity of 3.6 percent for 2020 made in May 2020. Expectations for 2021 are for an increase of 5.3 percent. The 16 industries that expect an increase in production capacity in 2021 — listed in order — are: Printing & Related Support Activities; Nonmetallic Mineral Products; Apparel, Leather & Allied Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Machinery; Transportation Equipment; Plastics & Rubber Products; Furniture & Related Products; Wood Products; Primary Metals; Miscellaneous Manufacturing; Chemical Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; and Paper Products.

CAPITAL EXPENDITURES — 2020 vs. 2019

Purchasing and supply managers report 2020 capital expenditures decreased 2.4 percent on average when compared to 2019 levels. Expenditures for 2020 beat survey respondents' previous expectations, as they predicted a decrease of 19.1 percent for 2020 in May 2020. The 23 percent of purchasers who reported increased capital expenditures in 2020 indicated an average increase of 31.9 percent, while the 34 percent who said their capital spending was reduced reported an average decrease of 29.1 percent. Forty-three percent of respondents said their levels of spend were unchanged in 2020. The seven industries showing increases in capital expenditures for 2020 — listed in order of percentage increase — are: Textile Mills; Food, Beverage & Tobacco Products; Fabricated Metal Products; Plastics & Rubber Products; Chemical Products; Transportation Equipment; and Machinery.

PREDICTED CAPITAL EXPENDITURES — 2021 vs. 2020

Purchasing and supply executives expect capital expenditures to increase 2.4 percent in 2021. The 29 percent of respondents who predict increased capital expenditures in 2021 indicate an average increase of 26.4 percent, while the 16 percent who said their capital spending would be reduced predict an average decrease of 32.7 percent. Fifty-five percent said they expect to spend the same in 2021 as in 2020. The 10 industries predicting increases in capital expenditures above the average increase of 2.4 percent for 2021 — listed in order of percentage increase — are: Paper Products; Nonmetallic Mineral Products; Primary Metals; Textile Mills; Furniture & Related Products; Fabricated Metal Products; Transportation Equipment; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; and Computer & Electronic Products.

See ISM's full summary of its December 2020 Semiannual Economic Forecast here, which includes the services sector.

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