ISM Reports Economic Growth to Continue in 2017

Manufacturing Growth Expected in 2017; Revenue to Increase 4.6%; Capital Expenditures to Increase 0.2%; Capacity Utilization Currently at 81.9%

Non-Manufacturing Growth Projected in 2017; Revenue to Increase 4.1%; Capital Expenditures to Decrease 0.2%; Capacity Utilization Currently at 85.2%

TEMPE, Ariz., Dec. 8, 2016 /PRNewswire/ -- Economic growth in the United States will continue in 2017, say the nation's purchasing and supply management executives in their December 2016 Semiannual Economic Forecast. Expectations are for a continuation of the economic recovery that began in mid-2009, as indicated in the monthly ISM^® Report On Business^®. The manufacturing sector is optimistic about growth in 2017, with revenues expected to increase in 16 manufacturing industries, and the non-manufacturing sector indicates that 14 of its industries will see higher revenues. Capital expenditures, a major driver in the U.S. economy, are expected to increase by 0.2 percent in the manufacturing sector and decrease by 0.2 percent in the non-manufacturing sector. Manufacturing expects that its employment base will grow by 0.6 percent, while non-manufacturing expects employment growth of 1.2 percent.

These 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 Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, and by Anthony S. Nieves, CPSM, C.P.M., CFPM, chair of the ISM Non-Manufacturing Business Survey Committee.

Manufacturing Summary

Expectations for 2017 are positive as 67 percent of survey respondents expect revenues to be greater in 2017 than in 2016. The panel of purchasing and supply executives expects a 4.6 percent net increase in overall revenues for 2017, compared to a 0.9 percent increase reported for 2016 over 2015 revenues. The 16 manufacturing industries expecting revenue improvement in 2017 over 2016 — listed in order — are: Printing & Related Support Activities; Textile Mills; Fabricated Metal Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Transportation Equipment; Miscellaneous Manufacturing; Petroleum & Coal Products; Chemical Products; Primary Metals; Paper Products; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Plastics & Rubber Products; and Machinery.

"Manufacturing purchasing and supply executives expect to see growth in 2017. They are optimistic about their overall business prospects for the first half of 2017, and are slightly more optimistic about the second half of 2017," said Holcomb. "In 2016, manufacturing experienced eight months of growth overall from January through November, including three consecutive months of growth from September through November, resulting in an average PMI^® of 51.2 for the first 11 months of 2016 as reported in the monthly Manufacturing ISM Report On Business^®. Respondents expect raw materials pricing pressures in 2016 to be low, and expect their profit margins will improve in 2017 over 2016. Manufacturers are also predicting growth in both exports and imports in 2017."

In the manufacturing sector, respondents report operating at 81.9 percent of their normal capacity, up 0.2 percentage point from the 81.7 percent reported in April 2016. Purchasing and supply executives predict that capital expenditures will increase by a modest 0.2 percent in 2017 over 2016, compared to the 7.3 percent increase reported for 2016 over 2015. Manufacturers have an expectation that employment in the sector will grow by 0.6 percent in 2017 relative to December 2016 levels, while labor and benefit costs are expected to increase an average of 2.5 percent. Respondents also expect the U.S. dollar to strengthen against all seven currencies of major trading partners in 2017, as was the case in 2016.

The panel predicts the prices paid for raw materials will increase by 0.9 percent during the first four months of 2017, and will increase an additional 0.4 percent during the balance of the year, with an overall increase of 1.3 percent for 2017. This compares to a reported 0.4 percent decrease in raw materials prices for 2016 compared with 2015.

Four special questions were asked of our panel. The first special question asked about the net impact on their organization's profits for the year 2016 thus far related to the strength of the U.S. dollar. The responses from our manufacturing panel, with percentages of the total number of responses noted, were "Negative" (17.8%), "Negligible" (52.6%), "Positive" (11.3%), and "Unsure" (18.3%). This indicates that, even though some of our respondents were unsure of the impact of a strong dollar, greater than 60 percent felt the strong dollar did not have a negative impact on their business. In this case, however; the impact was more likely inconsequential rather than positive.

The second special question asked about the net impact on their organization's profits for the year 2016 thus far related to the depressed prices of oil and related commodities in 2016. The responses from our manufacturing panel, with percentages of the total number of responses noted, were "Negative" (19.6%), "Negligible" (22.4%), "Positive" (48.6%), and "Unsure" (9.3%). This indicates that, even though some of our respondents were unsure of the impact of depressed oil and related commodity prices, over 70 percent felt that these depressed prices did not have a negative impact on their business.

The third special question asked about the combined net impact on their organization's profits for the year 2016 thus far related to the strength of the U.S. dollar and the depressed prices of oil and related commodities in 2016. The responses from our manufacturing panel, with percentages of the total number of responses noted, were "Negative" (18.9%), "Negligible" (28.8%), "Positive" (35.4%), and "Unsure" (17.0%). This indicates that, even though some of our respondents were unsure of the combined impact of a strong U.S. dollar and depressed oil and related commodity prices, nearly 65 percent felt that these combined factors did not have a negative impact on their business.

The fourth special question asked whether trade liberalization with Japan and/or Europe would help their businesses. The responses from our manufacturing panel, with percentages of the total number of responses noted, were "Yes, with Europe" (13.6%), "Yes, with Japan" (5.6%), "Yes, both" (31.5%), and "No" (49.3%).

Non-Manufacturing Summary

Fifty-seven percent of non-manufacturing supply management executives expect their 2017 revenues to be greater than in 2016. They currently expect a 4.1 percent net increase in overall revenues for 2017 compared to a 2.7 percent increase reported for 2016 over 2015 revenues. The 14 non-manufacturing industries expecting revenue improvement in 2017 over 2016 — listed in order — are: Information; Professional, Scientific & Technical Services; Construction; Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Retail Trade; Wholesale Trade; Mining; Utilities; Accommodation & Food Services; Finance & Insurance; Health Care & Social Assistance; and Other Services.

"Non-manufacturing supply managers' report operating at 85.2 percent of their normal capacity, lower than the 86.5 percent reported in April 2016. They are optimistic about continued growth in the first half of 2017 compared to the second half of 2016 even though there are some projected decreases in growth rate and capital reinvestment," said Nieves. "They forecast that their capacity to produce products and provide services will rise by 3 percent during 2017, and capital expenditures will decrease by 0.2 percent from 2016 levels. Non-manufacturers also predict their employment will increase by 1.2 percent during 2017."

Respondents in non-manufacturing industries expect the prices they pay for materials and services will increase by 1.8 percent during 2017. They also forecast their overall labor and benefit costs will increase 2.5 percent in 2017. Profit margins are reported to have increased in the second and third quarters of 2016, and respondents expect them to increase between now and April 2017.

The same four special questions were asked of our non-manufacturing panel. The first special question asked about the net impact on their organization's profits for the year 2016 thus far related to the strength of the U.S. dollar. The responses from our non-manufacturing panel, with percentages of the total number of responses noted, were "Negative" (8.1%), "Negligible" (50.6%), "Positive" (13.8%), and "Unsure" (27.5%). This indicates that, even though some of our respondents were unsure of the impact of a strong dollar, greater than 64 percent felt the strong dollar did not have a negative impact on their business. In this case, however; the impact was more likely inconsequential rather than positive.

The second special question asked about the net impact on their organization's profits for the year 2016 thus far related to the depressed prices of oil and related commodities in 2016. The responses from our non-manufacturing panel, with percentages of the total number of responses noted, were "Negative" (10.4%), "Negligible" (27.0%), "Positive" (43.6%), and "Unsure" (19.0%). This indicates that, even though some of our respondents were unsure of the impact of depressed oil and related commodity prices, over 70 percent felt that these depressed prices did not have a negative impact on their business.

The third special question asked about the combined net impact on their organization's profits for the year 2016 thus far related to the strength of the U.S. dollar and the depressed prices of oil and related commodities in 2016. The responses from our non-manufacturing panel, with percentages of the total number of responses noted, were "Negative" (12.4%), "Negligible" (33.5%), "Positive" (32.9%), and "Unsure" (21.1%). This indicates that, even though some of our respondents were unsure of the combined impact of a strong U.S. dollar and depressed oil and related commodity prices, over 66 percent felt that these combined factors did not have a negative impact on their business.

The fourth special question asked whether trade liberalization with Japan and/or Europe would help their businesses. The responses from our non-manufacturing panel, with percentages of the total number of responses noted, were "Yes, with Europe" (7.4%), "Yes, with Japan" (0.6%), "Yes, both" (21.5%), and "No" (70.6%).

OPERATING RATE

Manufacturing
Manufacturing purchasing and supply executives report their companies are currently operating at 81.9 percent of normal capacity. This is a small increase when compared to April 2016 (81.7%), and also a small increase when compared to December 2015 (81.6%). The following 10 industries — listed in order — are operating above the average rate of 81.9 percent: Wood Products; Paper Products; Petroleum & Coal Products; Plastics & Rubber Products; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Computer & Electronic Products; Miscellaneous Manufacturing; Chemical Products; and Electrical Equipment, Appliances & Components.

Non-Manufacturing
Non-manufacturing supply executives report their organizations are currently operating at 85.2 percent of normal capacity. This is lower than the 86.5 percent reported in April 2016, and the 87.9 percent reported in December 2015. Considering the production capacity increases reported in the following section of this forecast, this indicates that non-manufacturing industries are continuing to add capacity, but also find it necessary to maintain their capacity utilization at a relatively high level. The eight industries operating at or above the average capacity level of 85.2 percent — listed in order — are: Educational Services; Public Administration; Utilities; Management of Companies & Support Services; Retail Trade; Transportation & Warehousing; Finance & Insurance; and Accommodation & Food Services.

PRODUCTION CAPACITY

Manufacturing
Production capacity in manufacturing increased 2.5 percent in 2016 as 41 percent of purchasing and supply executives reported an average capacity increase of 9.3 percent, 9 percent reported an average decrease of 13.5 percent, and 50 percent reported no change. This compares to a predicted increase in production capacity of 3 percent for 2016 made in April 2016. Expectations for 2017 are for an increase of 4.2 percent. The 12 industries that report achieving an increase in production capacity in 2016 — listed in order — are: Plastics & Rubber Products; Fabricated Metal Products; Nonmetallic Mineral Products; Computer & Electronic Products; Furniture & Related Products; Miscellaneous Manufacturing; Textile Mills; Chemical Products; Food, Beverage & Tobacco Products; Printing & Related Support Activities; Transportation Equipment; and Paper Products.

The principal means of achieving increases in production capacity in 2016 were (in order of importance):

1. Additional plant and/or equipment
2. More hours worked with existing personnel
3. Additional personnel (permanent, temporary or contract)
4. Replaced equipment with technically advanced equipment

Non-Manufacturing
The capacity to produce products or provide services in the non-manufacturing sector increased 1.9 percent during 2016. This compares to the 1.5 percent increase reported in December 2015 for the year 2015, and is greater than what was predicted in April 2016, a 1.4 percent increase for 2016. For 2017, an increase of 3 percent is predicted. For 2016, 28 percent of non-manufacturing supply managers indicate increases averaging 9.4 percent, and 5 percent of respondents indicate decreases averaging 15.7 percent. Sixty-seven percent see no change in their capacity. The 11 industries reporting increases in capacity in 2016 — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Health Care & Social Assistance; Wholesale Trade; Information; Professional, Scientific & Technical Services; Retail Trade; Management of Companies & Support Services; Finance & Insurance; Accommodation & Food Services; and Construction.

The principal means of achieving increases in production capacity in 2016 were (in order of importance):

1. Additional personnel (permanent, temporary or contract)
2. More hours worked with existing personnel
3. Additional plant and/or equipment
4. Replaced equipment with technically advanced equipment

CAPITAL EXPENDITURES — 2016 vs. 2015

Manufacturing
Purchasing and supply managers' report 2016 capital expenditures increased 7.3 percent on average when compared to 2015 levels. The actual expenditures for 2016 were well above survey respondents' previous expectations, as they predicted an increase of 1 percent for 2016 in April 2016. The 41 percent of purchasers who reported increased capital expenditures in 2016 indicated an average increase of 28.8 percent, while the 18 percent who said their capital spending was reduced reported an average decrease of 24.6 percent. Forty-one percent of respondents said they spent the same in 2016 as in 2015. The 12 industries showing increases in capital expenditures for 2016 — listed in order of percentage increase — are: Fabricated Metal Products; Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Furniture & Related Products; Primary Metals; Food, Beverage & Tobacco Products; Wood Products; Chemical Products; Computer & Electronic Products; Miscellaneous Manufacturing; Plastics & Rubber Products; and Paper Products.

Non-Manufacturing
Non-manufacturing supply management executives report their level of capital expenditures in 2016 compared to 2015 increased 10.6 percent. This is more than the 2.6 percent increase reported for 2015 one year ago, and more than the 6.2 percent increase predicted by respondents in April 2016. Forty-two percent of respondents report increases averaging 31.8 percent. An additional 14 percent report decreases averaging 18.6 percent. Forty-four percent indicate they spent the same on capital expenditures in 2016 as in 2015. The 14 industries experiencing increases in capital expenditures in 2016 — listed in order — are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Educational Services; Wholesale Trade; Information; Retail Trade; Real Estate, Rental & Leasing; Public Administration; Construction; Health Care & Social Assistance; Professional, Scientific & Technical Services; Finance & Insurance; Management of Companies & Support Services; and Accommodation & Food Services.

PREDICTED CAPITAL EXPENDITURES — 2017 vs. 2016

Manufacturing
Purchasing and supply executives expect capital expenditures to increase only 0.2 percent in 2017. The 38 percent of respondents who predict increased capital expenditures in 2017 indicate an average increase of 21.5 percent, while the 21 percent who said their capital spending would be reduced predict an average decrease of 37.7 percent. Forty-one percent said they expect to spend the same in 2017 as in 2016. The 12 industries predicting increases in capital expenditures for 2017 — listed in order of percentage increase — are: Textile Mills; Furniture & Related Products; Wood Products; Plastics & Rubber Products; Machinery; Printing & Related Support Activities; Paper Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Nonmetallic Mineral Products; and Food, Beverage & Tobacco Products.

Non-Manufacturing
Non-manufacturing purchasing and supply executives are expecting a decrease of 0.2 percent in capital expenditures in 2017, less than the increase of 10.6 percent they are reporting for 2016. The 38 percent of respondents expecting to spend more on capital expenditures predict an average increase of 16 percent. An additional 19 percent anticipate a decrease averaging 32.1 percent. Forty-three percent expect to spend the same on capital expenditures in 2017 as in 2016. The 11 industries expecting increases in capital expenditures in 2017 — listed in order of percentage increase — are: Real Estate, Rental & Leasing; Utilities; Accommodation & Food Services; Construction; Transportation & Warehousing; Wholesale Trade; Professional, Scientific & Technical Services; Public Administration; Retail Trade; Health Care & Social Assistance; and Information.

PRICES — Changes Between End of 2015 and End of 2016

Manufacturing
After an earlier forecast in April 2016 of a 0.6 percent decrease in prices paid for raw materials in 2016, survey respondents now report realized price decreases averaging 0.4 percent for the year 2016. The 33 percent who say their prices are higher now than at the end of 2015 report an average increase of 5.3 percent, while the 44 percent who report lower prices averaged a 4.9 percent decrease. The remaining 23 percent indicate no change between the end of 2015 and the end of 2016. The eight industries experiencing average price increases in 2016 — listed in order — are: Wood Products; Apparel, Leather & Allied Products; Fabricated Metal Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Plastics & Rubber Products; Machinery; and Furniture & Related Products.

Non-Manufacturing
As 2016 draws to a close, non-manufacturing supply managers report prices they pay have increased by 0.6 percent over the entire year. This is slightly less than the 0.9 percent increase they predicted in April 2016, and less than the 1.5 percent increase predicted one year ago for 2015. Forty percent of purchasers report price increases averaging 4.5 percent. Fifteen percent of purchasers indicate decreased prices with an average reduction of 7.2 percent, and 45 percent of respondents have not experienced overall price changes this year. The 10 industries reporting price increases in 2016 — listed in order — are: Wholesale Trade; Finance & Insurance; Health Care & Social Assistance; Utilities; Retail Trade; Professional, Scientific & Technical Services; Transportation & Warehousing; Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; and Information.

PRICES – Predicted Changes Between End of 2016 and April 2017

Manufacturing
Forty-seven percent of purchasing and supply managers expect the prices they pay to increase in early 2017 by an average of 3.8 percent. At the same time, 22 percent anticipate decreases averaging 4.2 percent. Including the 31 percent who expect no change in prices in the first four months of 2017, purchasers expect the net average overall price change to increase 0.9 percent for the first four months of 2017. The 10 industries predicting increases in prices paid in the first part of 2017, higher than the 0.9 percent average — listed in order — are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Textile Mills; Printing & Related Support Activities; Fabricated Metal Products; Plastics & Rubber Products; Chemical Products; Paper Products; Food, Beverage & Tobacco Products; and Furniture & Related Products.

Non-Manufacturing
Non-manufacturing survey respondents predict their purchases in the first four months of 2017 will cost an average of 1.1 percent more than at the end of 2016. This is more than the 0.6 percent increase reported in the preceding section for all of 2016. Considering the prediction of a price change for all of 2017 (1.8 percent), purchasing and supply executives expect most of next year's price increases to occur in the first part of next year. Forty-seven percent of non-manufacturing respondents predict the prices they pay will increase an average of 3.8 percent in the first part of 2017. Thirteen percent of respondents expect price decreases averaging 5.2 percent. The remaining 40 percent predict no change in prices in the first four months of 2017. The eight industries predicting greater than or equal to the 1.1 percent average increase in prices they expect to pay in the first part of 2017 — listed in order of percentage increase — are: Transportation & Warehousing; Other Services; Wholesale Trade; Finance & Insurance; Information; Real Estate, Rental & Leasing; Health Care & Social Assistance; and Construction.

PRICES — Predicted Changes Between End of 2016 and End of 2017

Manufacturing
Respondents predict a net average increase in prices paid of 1.3 percent between December 2016 and December 2017, indicating they expect prices to increase an additional 0.4 percent during the period of May 2017 through December 2017. Fifty-five percent of respondents expect an average price increase of 4.3 percent for the full year of 2017, while 24 percent expect an average reduction of 4.4 percent. The remaining 21 percent expect no change in their average prices paid for the year 2017. The eight industries expecting to receive increases above the predicted average of 1.3 percent by the end of 2017 — listed in order — are: Textile Mills; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Fabricated Metal Products; Paper Products; Food, Beverage & Tobacco Products; Chemical Products; and Printing & Related Support Activities.

Non-Manufacturing
For all of 2017, non-manufacturing supply management executives expect their prices to increase an average of 1.8 percent. Fifty-three percent of respondents expect increases averaging 4.7 percent, 11 percent anticipate prices to drop an average of 6.1 percent, and 36 percent foresee no change in prices during the next year. The seven industries expecting greater than the 1.8 percent average price increase by the end of 2017 — listed in order of percentage increase — are: Other Services; Mining; Finance & Insurance; Public Administration; Health Care & Social Assistance; Accommodation & Food Services; and Wholesale Trade.

LABOR AND BENEFIT COSTS — Predicted Rate Change End of 2016 vs. End of 2017

Manufacturing
Purchasing and supply executives expect higher overall labor and benefit costs for 2017. Sixty-eight percent of respondents expect increased labor and benefit costs and expect them to grow by an average of 3.9 percent for all of 2017, while the 2 percent forecasting lower costs see them decreasing by an average of 5.8 percent. Including the 30 percent of respondents who believe costs will remain the same, the overall net rate of increase is expected to be 2.5 percent between the end of 2016 and the end of 2017. The nine industries expecting to pay an increase of 2.5 percent or greater — listed in order of percentage increase — are: Textile Mills; Miscellaneous Manufacturing; Printing & Related Support Activities; Primary Metals; Paper Products; Fabricated Metal Products; Plastics & Rubber Products; Furniture & Related Products; and Apparel, Leather and Allied Products.

Non-Manufacturing
Purchasing and supply executives expect a 2.5 percent increase in labor and benefit costs for non-manufacturing industries in 2017. Sixty-six percent of respondents expect such costs to increase by an average of 4.4 percent. Another 7 percent of respondents expect labor and benefit costs to shrink by an average of 5.5 percent, and 27 percent believe costs will remain stable during 2017. The eight industries expecting to pay an increase of 2.5 percent or higher — listed in order of percentage increase — are: Mining; Professional, Scientific & Technical Services; Utilities; Wholesale Trade; Transportation & Warehousing; Construction; Other Services; and Health Care & Social Assistance.

EMPLOYMENT — Change in Overall Employment

Manufacturing
ISM's Manufacturing Business Survey Committee members report that manufacturing employment decreased 0.2 percent in 2016 relative to 2015, and forecast that employment will increase by 0.6 percent, on average, for the full year of 2017 relative to December 2016. Thirty-four percent of respondents expect employment to be 5.9 percent higher in 2017, while 15 percent predict employment to be lower by 9.9 percent. The remaining 51 percent of respondents expect their employment levels to be unchanged in 2017. The 11 industries predicting increases in employment in 2017 — listed in order — are: Textile Mills; Fabricated Metal Products; Miscellaneous Manufacturing; Furniture & Related Products; Primary Metals; Plastics & Rubber Products; Computer & Electronic Products; Printing & Related Support Activities; Paper Products; Electrical Equipment, Appliances & Components; and Nonmetallic Mineral Products.

Non-Manufacturing
ISM's Non-Manufacturing Business Survey Committee members report that non-manufacturing employment has decreased 0.1 percent since April 2016. Looking ahead to 2017, they forecast that employment will increase 1.2 percent by the end of 2017. For 2017, 40 percent of respondents expect higher levels of employment, 13 percent anticipate lower levels, and 47 percent expect their employment levels to be unchanged. The 12 industries anticipating increases in their employment in 2017 — listed in order — are: Arts, Entertainment & Recreation; Management of Companies & Support Services; Professional, Scientific & Technical Services; Wholesale Trade; Accommodation & Food Services; Finance & Insurance; Agriculture, Forestry, Fishing & Hunting; Construction; Other Services; Real Estate, Rental & Leasing; Retail Trade; and Health Care & Social Assistance.

Note: A diffusion index above 50 percent would generally indicate an expectation of higher employment; below 50 percent, an expectation of lower employment.

EXPORT BUSINESS — Predicted Change for Next Half Year (First Half of 2017)

Manufacturing
The responses for this semiannual report indicate purchasers see increases in new export orders for the first half of 2017. Of the 84 percent of respondents who export, 42 percent predict an increase (41 percent moderate and 1 percent substantial) over the next half-year. Nine percent of respondents (8 percent moderate and 1 percent substantial) predict a decrease in their exports, and 49 percent anticipate no change in exports over the next half-year. The 14 industries expecting growth in exports during the first half of 2017 — listed in order — are: Paper Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Fabricated Metal Products; Petroleum & Coal Products; Printing & Related Supports Activities; Computer & Electronic Products; Nonmetallic Mineral Products; Textile Mills; Transportation Equipment; Chemical Products; Plastics & Rubber Products; Primary Metals; and Machinery.

Non-Manufacturing
For the first half of 2017, non-manufacturing supply managers who report that their organizations engage in exporting are optimistic concerning their export business. Of the 33 percent of non-manufacturing business survey respondents who report that they export, 38 percent predict an increase (36 percent moderate and 2 percent substantial) over the next half year. Six percent of the respondents expect a decrease in their exports (6 percent moderate and 0 percent substantial), and 56 percent anticipate no change in exports over the next half year. Of the industries that report they export, the following seven industries expect growth in export business in the first half of 2017 — listed in order — are: Transportation & Warehousing; Retail Trade; Management of Companies & Support Services; Information; Professional, Scientific & Technical Services; Wholesale Trade and Accommodation & Food Services.

IMPORT BUSINESS — Predicted Change for Next Half Year (First Half of 2017)

Manufacturing
Purchasers expect increases in imports in the first half of 2017. Of the 87 percent of purchasers who reported they import, 36 percent predict an increase in their imports over the next half-year (33 percent moderate and 3 percent substantial), while 16 percent predict a decrease in imports of materials (14 percent moderate and 2 percent substantial). Forty-eight percent of survey respondents expect no change in imports in the first half of 2017. The 14 industries expecting growth in imports — listed in order — are: Nonmetallic Mineral Products; Paper Products; Petroleum & Coal Products; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Textile Mills; Fabricated Metal Products; Furniture & Related Products; Computer & Electronic Products; Chemical Products; Miscellaneous Manufacturing; Plastics & Rubber Products; Machinery; and Transportation Equipment.

Non-Manufacturing
Non-manufacturers have lower expectations for the use of imports for the first half of 2017 than they did in December 2015 for the first half of 2016. Of the 48 percent of non-manufacturing organizations who reported they import, 34 percent (33 percent moderate and 1 percent substantial) predict an increase in their imports during the first half of 2017. Seven percent of the respondents (7 percent moderate and 0 percent substantial) predict a decrease in imports of materials and services. The remaining 59 percent of purchasers expect no change in imports over the next half year. The nine industries expecting growth in imports — listed in order — are: Transportation & Warehousing; Agriculture, Forestry, Fishing & Hunting; Mining; Wholesale Trade; Accommodation & Food Services; Management of Companies & Support Services; Retail Trade; Public Administration; and Professional, Scientific and Technical Services.

INVENTORY-TO-SALES RATIO

Manufacturing
Of the 93 percent of manufacturing purchasers who answered this question, 15 percent anticipate increasing their purchased inventory-to-sales ratio during 2017. An additional 19 percent expect their ratio to drop, and 66 percent see no change. The diffusion index of 48 percent suggests the inventory-to-sales ratio may drop somewhat in 2017.

Non-Manufacturing
Of the 79 percent of non-manufacturing purchasers who answered this question, 10 percent anticipate increasing their purchased inventory-to-sales ratio during 2017. An additional 10 percent expect their ratio to drop, and 80 percent see no change. The diffusion index of 50 percent suggests the inventory-to-sales ratio will be unchanged in 2017.

Note: A diffusion index above 50 percent would indicate an increase in the inventory-to-sales ratio; below 50 percent, a decrease in the ratio.

U.S. DOLLAR — Predicted Strength vs. Major Trading Currencies — in 2017 — Manufacturing Only

Manufacturing
Purchasing and supply executives are expecting the U.S. dollar will strengthen in 2017 against all the foreign currencies listed below. The average diffusion index for this forecast is 61.2 percent, an increase of 1 percent over the December 2015 forecast average of 60.2 percent for 2016.

Note: A diffusion index above 50 percent would predict a generally stronger U.S. dollar; below 50 percent, a generally weaker U.S. dollar, with the distance from 50 percent indicative of the predicted strength or weakness.

BUSINESS REVENUES

Business Revenues Comparison — 2016 vs. 2015

Manufacturing
Summarizing revenues for 2016, 49 percent of respondents say revenue was better than 2015, and that revenues increased an average of 7.8 percent over 2015. Conversely, 30 percent say their revenues decreased in 2016 by an average of 9.8 percent, and the remaining 21 percent indicate no change. Overall, purchasing and supply executives indicate a net increase of 0.9 percent in business revenues for 2016 over 2015. This is less than the 2.8 percent increase that was forecast in April 2016 for all of 2016, and less than the 4.1 percent increase predicted in December 2015 for all of 2016. The 10 industries reporting increases (highest to lowest) in revenues in 2016 — listed in order — are: Nonmetallic Mineral Products; Furniture & Related Products; Fabricated Metal Products; Textile Mills; Miscellaneous Manufacturing; Transportation Equipment; Computer & Electronic Products; Chemical Products; Plastics & Rubber Products; and Food, Beverage & Tobacco Products.

Non-Manufacturing
Non-manufacturing supply management executives report that business revenues for 2016 have increased over 2015 by 2.7 percent. This is more than the 2.4 percent increase predicted in April 2016 for all of 2016. The 51 percent of respondents reporting better business in 2016 than in 2015 estimate average revenue increase of 9.4 percent. This is in contrast to an average decrease of 10.3 percent reported by the 19 percent of respondents who indicate worse business in 2016. The remaining 30 percent have experienced no change in 2016 from 2015. The 12 industries reporting increases in revenues in 2016 — listed in order — are: Information; Construction; Management of Companies & Support Services; Wholesale Trade; Transportation & Warehousing; Finance & Insurance; Accommodation & Food Services; Utilities; Professional, Scientific & Technical Services; Retail Trade; Public Administration; and Arts, Entertainment & Recreation.

Business Revenues Prediction for 2017

Manufacturing
Manufacturing survey respondents forecast that business revenues for 2017 will be stronger than in 2016. The 67 percent of respondents forecasting better business revenues in 2017 than in 2016 estimate an average increase of 8.5 percent in their organizations' revenues. This is in contrast to an average decrease of 10.8 percent forecast by the 9 percent who predict lower business revenues in 2017. Including the 24 percent who see no change in 2017, the forecast for overall net increase in business revenues for 2017 over 2016 is 4.6 percent. The 16 manufacturing industries expecting revenue improvement in 2017 over 2016 — listed in order — are: Printing & Related Support Activities; Textile Mills; Fabricated Metal Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Transportation Equipment; Miscellaneous Manufacturing; Petroleum & Coal Products; Chemical Products; Primary Metals; Paper Products; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Plastics & Rubber Products; and Machinery.

Non-Manufacturing
Non-manufacturing survey respondents forecast that business revenues for 2017 will be improved over 2016 by an average of 4.1 percent. This is greater than the 2.7 percent increase reported for 2016, and more than the 3.2 percent increase predicted one year ago for 2016 revenues over 2015 revenues. The 57 percent of respondents forecasting better business in 2017 than in 2016 estimate average revenue increase of 8.9 percent. This is in contrast to an average decrease of 8.2 percent forecast by the 11 percent who predict worse business in 2017. The remaining 32 percent see no change in 2017. The 14 industries expecting increases in revenues in 2017 — listed in order of percentage increase — are: Information; Professional, Scientific & Technical Services; Construction; Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Retail Trade; Wholesale Trade; Mining; Utilities; Accommodation & Food Services; Finance & Insurance; Health Care & Social Assistance; and Other Services.

PROFIT MARGINS

Manufacturing
Survey respondents report that profit margins increased on average during the second and third quarters of 2016, as 34 percent experienced an increase in profit margins, 27 percent had lower margins, and 39 percent reported no change. Overall, expectations are higher between now and April 2017 as 38 percent of respondents forecast better profit margins, 17 percent predict lower profit margins, and 45 percent predict no change. The 11 industries expecting an increase in profit margins through April 2017 — listed in order of percentage increase — are: Miscellaneous Manufacturing; Textile Mills; Paper Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Primary Metals; Computer & Electronic Products; Machinery; Petroleum & Coal Products; and Transportation Equipment.

Non-Manufacturing
Non-manufacturing supply management executives were asked about changes in profit margins their organizations recently experienced and are expecting in the near future. Their responses indicate that 32 percent experienced an increase in profit margins during the second and third quarters of 2016, while 17 percent found smaller profit margins, and 51 percent had no change in margins during the same period. Looking ahead from now through April 2017, 35 percent of supply managers expect improved profit margins, 12 percent expect lower profit margins, and the remaining 53 percent of respondents anticipate no change in their profit margins. The 13 industries expecting an increase in profit margins through April 2017 — listed in order of percentage increase — are: Arts, Entertainment & Recreation; Construction; Retail Trade; Real Estate, Rental & Leasing; Management of Companies & Support Services; Mining; Finance & Insurance; Wholesale Trade; Information; Professional, Scientific & Technical Services; Other Services; Transportation & Warehousing; and Public Administration.

BUSINESS COMPARISON

The First Half of 2017 Compared with Last Half of 2016

Manufacturing
Looking ahead to the first half of 2017, survey respondents are optimistic about the next half year as reflected in a diffusion index of 64 percent. Comparing their outlook for the first half of 2017 to the last half of 2016, 43 percent predict it will be better, 15 percent predict it will be worse, and 42 percent expect no change. The 12 industries expecting improvement in the first half of 2017 — listed in order — are: Paper Products; Textile Mills; Miscellaneous Manufacturing; Plastics & Rubber Products; Chemical Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Transportation Equipment; Computer & Electronic Products; Primary Metals; Machinery; and Petroleum & Coal Products.

Non-Manufacturing
The first half of 2017 is predicted to be better than the last half of 2016, according to non-manufacturing purchasing and supply managers. The diffusion index indicating current expectations is 65.5 percent. Forty-three percent of respondents expect the first half of next year to be better than the last half of this year, 12 percent anticipate it will be worse, and 45 percent predict no change. The 15 industries expecting improvement in the first half of 2017 — listed in order — are: Transportation & Warehousing; Mining; Agriculture, Forestry, Fishing & Hunting; Utilities; Professional, Scientific & Technical Services; Management of Companies & Support Services; Construction; Finance & Insurance; Wholesale Trade; Accommodation & Food Services; Retail Trade; Arts, Entertainment & Recreation; Other Services; Health Care & Social Assistance; and Public Administration.

Note: A diffusion index above 50 percent would generally indicate an expectation of the first half of the coming year being better than the second half of the current year.

The Second Half of 2017 Compared with the First Half of 2017

Manufacturing
Purchasing and supply executives are somewhat more optimistic about the second half of 2017 compared to the first half of 2017. The percentage of survey respondents who forecast the second half of 2017 to be better than the first half is 42 percent, while 11 percent expect it to be worse, and 47 percent expect no change. The diffusion index for the second half of 2017 is 65.5 percent, compared to 64 percent for the first half of 2017. The 14 industries predicting improvement in the second half of 2017 — listed in order — are: Fabricated Metal Products; Computer & Electronic Products; Petroleum & Coal Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Paper Products; Plastics & Rubber Products; Textile Mills; Primary Metals; Food, Beverage & Tobacco Products; Furniture & Related Products; Chemical Products; Machinery; and Transportation Equipment.

Non-Manufacturing
Comparing the second half of 2017 to the first half, non-manufacturing purchasing and supply executives feel more optimistic as they do for the first half of the year compared to the last half of 2016 (diffusion index for the second half is 68.0 percent and the first half is 65.5 percent). The percentage of respondents who currently forecast the second half of 2017 to be better than the first half is 43 percent, while 7 percent expect it to be worse. An additional 50 percent of purchasers expect no change. The 14 industries expecting improvement in the second half of 2017 — listed in order — are: Information; Mining; Retail Trade; Transportation & Warehousing; Professional, Scientific & Technical Services; Real Estate, Rental & Leasing; Utilities; Wholesale Trade; Management of Companies & Support Services; Accommodation & Food Services; Finance & Insurance; Construction; Public Administration; and Health Care & Social Assistance.

Note: A diffusion index above 50 percent would generally indicate an expectation of the second half of the coming year being better than the first half.

OUTLOOK FOR THE NEXT 12 MONTHS

Manufacturing
Compared to the outlook for 2016 reported in December of 2015, survey respondents this year are somewhat more optimistic about the outlook for 2017. Forty-seven percent of respondents believe 2017 will be better than 2016. Forty-one percent of respondents believe 2017 will be the same as 2016, and 12 percent believe 2017 will be worse than 2016. The resulting diffusion index for the outlook for 2017 is 67.5 percent, compared with 66.5 percent from one year ago, when looking forward to 2016.

Non-Manufacturing
Non-manufacturing survey respondents are overall more optimistic on their outlook now as compared to when they looked ahead in December 2015. Because a larger proportion of respondents this year believe 2017 will be better than 2016 and a smaller proportion of respondents believe 2017 will be worse than 2016, the diffusion index looking forward into 2017 is higher than the diffusion index looking forward into 2016.

SPECIAL QUESTION TOPIC #1: STRENGTH OF THE U.S. DOLLAR

Manufacturing
In response to a first special question in which we asked the panel about the net impact on their organization's profits for the year 2016 thus far related to the strength of the U.S. dollar, manufacturing respondents indicated the following:

• Negative impact on organization's profits: (17.8%)
• Negligible impact on organization's profits: (52.6%)
• Positive impact on organization's profits: (11.3%)
• Unsure: (18.3%)

Non-Manufacturing
In response to a first special question in which we asked the panel about the net impact on their organization's profits for the year 2016 thus far related to the strength of the U.S. dollar, non-manufacturing respondents indicated the following:

• Negative impact on organization's profits: (8.1%)
• Negligible impact on organization's profits: (50.6%)
• Positive impact on organization's profits: (13.8%)
• Unsure: (27.5%)

SPECIAL QUESTION TOPIC #2: DEPRESSED PRICES OF OIL AND RELATED COMMODITIES

Manufacturing
In response to a second special question in which we asked the panel about the net impact to date on their organization's profits due to the depressed prices of oil and related commodities in 2016, manufacturing respondents indicated the following:

• Negative impact on organization's profits: (19.6%)
• Negligible impact on organization's profits: (22.4%)
• Positive impact on organization's profits: (48.6%)
• Unsure: (9.3%)

Non-Manufacturing
In response to a second special question in which we asked the panel about the net impact to date on their organization's profits due to the depressed prices of oil and related commodities in 2016, non-manufacturing respondents indicated the following:

• Negative impact on organization's profits: (10.4%)
• Negligible impact on organization's profits: (27.0%)
• Positive impact on organization's profits: (43.6%)
• Unsure: (19.0%)

SPECIAL QUESTION TOPIC #3: COMBINED IMPACT OF THE ABOVE TWO QUESTIONS

Manufacturing
In response to a third special question in which we asked the panel about the net impact on their organization's profits for the full year of 2016 related to the strength of the U.S. dollar combined with depressed prices of oil and related commodities in 2016, manufacturing respondents indicated the following:

• Negative impact on organization's profits: (18.9%)
• Negligible impact on organization's profits: (28.8%)
• Positive impact on organization's profits: (35.4%)
• Unsure: (17.0%)

Non-Manufacturing
In response to a third special question in which we asked the panel about the net impact on their organization's profits for the full year of 2016 related to the strength of the U.S. dollar combined with depressed prices of oil and related commodities in 2016, non-manufacturing respondents indicated the following:

• Negative impact on organization's profits: (12.4%)
• Negligible impact on organization's profits: (33.5%)
• Positive impact on organization's profits: (32.9%)
• Unsure: (21.1%)

SPECIAL QUESTION TOPIC #4: WORLD TRADE LIBERALIZATION WITH JAPAN AND/OR EUROPE

Manufacturing
In response to a fourth special question in which we asked the panel whether trade liberalization with Japan and/or Europe would help their businesses, manufacturing respondents indicated the following:

• Yes, with Europe would help: (13.6%)
• Yes, with Japan would help: (5.6%)
• Yes, both would help: (31.5%)
• No: (49.3%)

Non-Manufacturing
In response to a fourth special question in which we asked the panel whether trade liberalization with Japan and/or Europe would help their businesses, non-manufacturing respondents indicated the following:

• Yes, with Europe would help: (7.4%)
• Yes, with Japan would help: (0.6%)
• Yes, both would help: (21.5%)
• No: (70.6%)

SUMMARY

Manufacturing
The manufacturing sector is currently expanding, and the forecast indicates that it will continue to expand in the first half of 2017, and expand at a slightly higher rate in the second half of 2017.

• Operating rate is currently at 81.9 percent.
• Production capacity increased by 2.5 percent in 2016.
• Production capacity is expected to increase by 4.2 percent in 2017.
• Capital expenditures increased 7.3 percent in 2016.
• Capital expenditures are expected to increase 0.2 percent in 2017.
• Prices paid decreased 0.4 percent in 2016.
• Overall, 2017 prices paid are expected to increase 1.3 percent.
• Labor and benefit costs are expected to increase 2.5 percent in 2017.
• Manufacturing employment is expected to increase 0.6 percent in 2017.
• Expect growth in U.S. exports in 2017.
• Expect growth in U.S. imports in 2017.
• Manufacturing revenues are up 0.9 percent in 2016.
• Manufacturing revenues are expected to increase 4.6 percent in 2017.
• The U.S. dollar is expected to strengthen versus all major trading partner currencies in 2017.
• Overall, attitude of manufacturing supply managers: optimistic outlook with 88 percent of respondents predicting 2017 will be the same as or better than 2016.

Non-Manufacturing
The non-manufacturing sector continues to expand, and the forecast indicates an increased rate of expansion in 2017.

• Operating rate is currently at 85.2 percent.
• Production capacity increased 1.9 percent in 2016.
• Production and provision capacity is expected to increase 3 percent in 2017.
• Capital expenditures increased 10.6 percent in 2016.
• Capital expenditures are expected to decrease 0.2 percent in 2017.
• Prices paid increased 0.6 percent in 2016.
• Prices paid are expected to increase 1.1 percent in 2017.
• Labor and benefit costs are expected to increase 2.5 percent in 2017.
• Non-manufacturing employment is expected to increase 1.2 percent in 2017.
• Expect export levels to increase in 2017.
• Expect import growth in 2017.
• Non-manufacturing revenues are up 2.7 percent in 2016.
• Non-manufacturing revenues are expected to rise 4.1 percent in 2017.
• Overall attitude of non-manufacturing supply managers: mostly positive outlook, with 88 percent of respondents predicting 2017 will be the same as or better than 2016.

*Miscellaneous Manufacturing includes items such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies.

**Other Services include services such as equipment and machinery repairing; promoting or administering religious activities; grant making; advocacy; and providing dry-cleaning and laundry services, personal care services, death care services, pet care services, photofinishing services, temporary parking services, and dating services.

About This Report
The data presented herein is obtained from a survey of manufacturing and non-manufacturing supply executives nationwide based on information they have collected within their respective organizations. ISM^® makes no representation, other than that stated within this release, regarding the individual company data collection procedures. The data should be compared to all other economic data sources when used in decision-making.

Data and Method of Presentation
In addition to this forecast, the Manufacturing ISM^® Report On Business^® is issued monthly and is considered by many economists to be the most reliable near-term economic barometer available. It is reviewed regularly by government agencies and economic business leaders. The report, compiled from responses to questions asked of purchasing and supply executives across the country, tracks industrial production, new orders, inventories, supplier deliveries, imports, exports, backlog of orders, employment, customers' inventories, buying policies and prices. The report has been issued by the association since 1931, except during World War II. Results shown for Manufacturing are based on data compiled from all manufacturing sub-sectors: Food, Beverage & Tobacco Products; Textile Mills; Apparel, Leather & Allied Products; Wood Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

Covering the non-manufacturing sector, ISM debuted the Non-Manufacturing ISM^® Report On Business^® in June 1998. The Non-Manufacturing ISM Report On Business^® is released on the third business day of each month, and is based on data received from purchasing and supply executives across the country. The report covers business activity, new orders, backlog of orders, new export orders, inventory change, inventory sentiment, imports, prices, employment, and supplier deliveries. Results shown for Non-Manufacturing are based on data compiled from all non-manufacturing sectors: Agriculture, Forestry, Fishing & Hunting; Mining; Utilities; Construction; Wholesale Trade; Retail Trade; Transportation & Warehousing; Information; Finance & Insurance; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Management of Companies & Support Services; Educational Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Accommodation & Food Services; Public Administration; and Other Services (services such as Equipment & Machinery Repairing; Promoting or Administering Religious Activities; Grantmaking; Advocacy; and Providing Dry-Cleaning & Laundry Services, Personal Care Services, Death Care Services, Pet Care Services, Photofinishing Services, Temporary Parking Services, and Dating Services).

The industries reporting growth, as indicated in the Manufacturing and Non-Manufacturing ISM^® Report On Business^® monthly reports, and in this semiannual forecast, are listed in the order of most growth to least growth. For the industries reporting contraction or decreases, those are listed in the order of the highest level of contraction/decrease to the least level of contraction/decrease.

The Manufacturing and Non-Manufacturing ISM^® Report On Business^® is published monthly by the Institute for Supply Management^®, the first supply institute in the world. Founded in 1915, ISM's mission is to enhance the value and performance of procurement and supply chain management practitioners and their organizations worldwide. By executing and extending its mission through education, research, standards of excellence and information dissemination — including the renowned monthly ISM^® Report On Business^® — ISM maintains a strong global influence among individuals and organizations. ISM is a not-for-profit educational association that serves professionals with an interest in supply management who live and work in more than 80 countries. ISM offers the Certified Professional in Supply Management^® (CPSM^®) and Certified Professional in Supplier Diversity^® (CPSD^®) qualifications.

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SOURCE Institute for Supply Management