Looking ahead to 2022, the Institute for Supply Management forecasts that economic improvement in the United States will continue for both the manufacturing and services sector.
Based on a December survey of purchasing and supply management executives, the December 2021 Semiannual Economic Forecast presaged a continuing growth trend, one that began in June 2020, as indicated in the monthly ISM Report On Business. ISM expects revenues to increase in 15 of 18 manufacturing industries and 17 of 18 service industries. The forecast predicts capital expenditure increases of 7.7% in the manufacturing sector after a 12.1% increase in 2021, and a 10.3% increase in the services sector as the manufacturing employment base grows by 1% following a 3.3% gain in 2021. First-half 2022 increases are likely to be stronger than those in the second half, according to ISM.
In the survey, 65% of respondents said they expect revenues to advance in 2022 from 2021. The panel of purchasing and supply executives expects a 6.5% net increase in overall revenues for 2022 versus a 14.1% increase reported for 2021. Fifteen of the 18 manufacturing industries identified expect revenue improvement in 2022. Listed in order of largest to smallest projected increase, they are Apparel, Leather & Allied Products; Machinery; Computer & Electronic Products; Fabricated Metal Products; Transportation Equipment; Primary Metals; Miscellaneous Manufacturing; Chemical Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Printing & Related Support Activities; Nonmetallic Mineral Products, and Paper Products.
“Manufacturing’s purchasing and supply executives expect to see strong growth in 2022. They are optimistic about overall business prospects for the first half of 2022, with business continuing to expand through the second half, though at slightly lower rates. Manufacturing experienced 18 consecutive months of growth from June 2020 through November 2021, with the composite PMI registering above 60 in nine of the last 12 months of that time frame. Respondents expect raw materials pricing pressure to increase in 2022, as well as improved profit margins over H2 2021. Wages and employment will continue at high rates of growth as hiring slows. Manufacturers also predict growth in both exports and imports in 2022,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.
In the manufacturing sector, respondents report operating at 88.7% of normal capacity, up 0.4 percentage of a point from May 2021. Executive respondents predicted that capital expenditures would increase by 7.7% in 2022 year over year, which compares to the 12.1% advance reported for 2021 over 2020. Manufacturers expect employment in the sector to grow by 1% in 2022 relative to December 2021 levels and labor and benefit costs to increase an average of 4.7%. Respondents also expect the U.S. dollar to weaken against six of the seven currencies of major trading partners in 2022 but strengthen relative to the Mexican peso.
The panel predicts that prices paid for raw materials will jump 8.2% during the first five months of the year, with an overall increase of 8.1% for 2022. The 2022 predicted increases compare to a reported 14.5% jump in raw materials prices between the end of 2020 and November of 2021, ISM stated.
In the services sector, 54% of services supply management executives expected their 2022 revenues to come in higher than they did in 2021. They expect a 4.3% net increase in overall revenues for 2022 versus a 4.8% increase in 2021. The 17 industries should see revenue increases in 2022, the execs asserted. Listed in order of largest to smallest projected increase, they are Mining; Accommodation & Food Services; Information; Arts, Entertainment & Recreation; Finance & Insurance; Wholesale Trade; Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; Construction; Utilities; Professional, Scientific & Technical Services; Other Services; Retail Trade; Public Administration; Transportation & Warehousing; Educational Services, and Health Care & Social Assistance.
“Services supply executives report operating at 89.4% of their normal capacity, the same as the 89.4% reported in May 2021. They are optimistic about continued growth in the first half of 2022 and more growth for the second half, with a projected increase in the growth rate for capital reinvestment. They forecast that their capacity to produce products and provide services will rise by 3.3% during 2022, and capital expenditures will increase by 10.3%. Services panel members also predict their overall employment will increase by 1% during 2022,” said Anthony Nieves, chair of the ISM Services Business Survey Committee.
Respondents in services industries expected that the prices they pay for materials and services to advance by 8.9% during 2022. They forecast that their overall labor and benefit costs will increase by 6.1%. They reported profit margins decreased in the second and third quarters of 2021 but expect profit margins to increase between now and May 2022.