ISM® Reports Economic Growth To Continue In 2018

Manufacturing Growth Expected in 2018

Revenue to Increase 5.1%

Capital Expenditures to Increase 2.7%

Capacity Utilization Currently at 85.8%

Non-Manufacturing Growth Projected in 2018

Revenue to Increase 6%

Capital Expenditures to Increase 3.8%

Capacity Utilization Currently at 91.9%

TEMPE, Ariz., Dec. 11, 2017 /PRNewswire/ -- Economic growth in the United States will continue in 2018, say the nation's purchasing and supply management executives in the December 2017 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 2018, with revenues expected to increase in 16 manufacturing industries, and the non-manufacturing sector indicates that 17 of its industries will see higher revenues. Capital expenditures, a major driver in the U.S. economy, are expected to increase by 2.7 percent in the manufacturing sector and increase by 3.8 percent in the non-manufacturing sector. Manufacturing expects that its employment base will grow by 1.2 percent, while non-manufacturing expects employment growth of 1.5 percent.

These projections are part of the forecast issued by the Business Survey Committee of 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 Non-Manufacturing Business Survey Committee.

Manufacturing Summary

Expectations for 2018 are positive, as 70 percent of survey respondents expect revenues to be greater in 2018 than in 2017. The panel of purchasing and supply executives expects a 5.1 percent net increase in overall revenues for 2018, compared to a 4.6 percent increase predicted for 2017 over 2016 revenues. The 16 manufacturing industries expecting revenue improvement in 2018 over 2017 — listed in order — are: Fabricated Metal Products; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Machinery; Miscellaneous Manufacturing; Computer & Electronic Products; Transportation Equipment; Plastics & Rubber Products; Primary Metals; Paper Products; Textile Mills; Chemical Products; Food, Beverage & Tobacco Products; Furniture & Related Products; Printing & Related Support Activities; and Petroleum & Coal Products.

"Manufacturing purchasing and supply executives expect to see growth in 2018. They are optimistic about their overall business prospects for the first half of 2018, with business continuing to expand through the second half of 2018," says Fiore. "In 2017, manufacturing experienced 11 straight months of growth from January through November, resulting in an average PMI^® of 57.4, compared to 51.5 for 2016, as reported in the monthly Manufacturing ISM Report On Business^®. Respondents expect raw materials pricing pressures in 2018 to increase, and expect their profit margins will improve in 2018 over 2017. Manufacturers are also predicting growth in both exports and imports in 2018."

In the manufacturing sector, respondents report operating at 85.8 percent of their normal capacity, up 3.3 percentage points from the 82.5 percent reported in May 2017. Purchasing and supply executives predict that capital expenditures will increase by 2.7 percent in 2018 over 2017, compared to the 8.7 percent increase reported for 2017 over 2016. Manufacturers have an expectation that employment in the sector will grow by 2.3 percent in 2017 relative to December 2016 levels, while labor and benefit costs are expected to increase an average of 2.1 percent in 2018. Respondents also expect the U.S. dollar to strengthen against all seven currencies of major trading partners in 2018, as was the case in 2017.

The panel predicts the prices paid for raw materials will increase by 1.3 percent during the first four months of 2018, and will increase an additional 0.5 percent during the balance of the year, with an overall increase of 1.8 percent for 2018. This compares to a reported 2.1 percent increase in raw materials prices for 2017 compared with 2016.

Four special questions were asked of our panel.

1. The first special question asked about the difficulty hiring workers to fill open positions in the past six months. The responses from our manufacturing panel, with percentages of the total number of responses noted, were "Yes" (64.7%), "No" (33.8%), and "Not applicable (no open positions)" (1.4%).

2. The second special question asked if the firm had raised wages to recruit new hires. The responses from our manufacturing panel, with percentages of the total number of responses noted, were "Yes" (44.4%), "No" (53.1%), and "Not applicable" (2.4%).

3. The third special question asked if the firm had offered additional training to new hires. The responses from our manufacturing panel, with percentages of the total number of responses noted, were "Yes" (44.4%), "No" (50.2%), and "Not applicable" (5.4%).

4a. The fourth special question asked whether the firm has increased, decreased or left unchanged its capital spending plans for the next 12 months. The responses from our manufacturing panel, with percentages of the total number of responses noted, were "Increased capital spending plans" (39.9%), "Decreased capital spending plans" (16.3%), and "No change to capital spending plans" (43.8%).

4b. When asked "why" in response to the previous question; 66 percent of respondents reported "General Business Outlook", (5.8%) of respondents reported "Prospects for Business Tax Reform", (2.9%) reported "Prospects for Regulatory Reform", (13.6%) reported "Other" and (11.7%) reported "Not Applicable".

Non-Manufacturing Summary

Fifty-nine percent of non-manufacturing supply management executives expect their 2018 revenues to be greater than in 2017. They currently expect a 6 percent net increase in overall revenues for 2018 compared to a 5.7 percent increase reported for 2017 over 2016 revenues. The 17 non-manufacturing industries expecting revenue improvement in 2018 over 2017 — listed in order — are: Information; Professional, Scientific & Technical Services; Construction; Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Retail Trade; Real Estate, Rental & Leasing; Transportation & Warehousing; Wholesale Trade; Other Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Finance & Insurance; Educational Services; Accommodation & Food Services; Public Administration; and Mining.

"Non-manufacturing supply managers report operating at 91.9 percent of their normal capacity, higher than the 86.9 percent reported in May 2017. They are optimistic about continued growth in the first half of 2018 compared to the second half of 2017, even though there is a projected decrease in growth rate for capital reinvestment," says Nieves. "They forecast that their capacity to produce products and provide services will rise by 3.4 percent during 2018, and capital expenditures will increase by 3.8 percent from 2017 levels. Non-manufacturers also predict their employment will increase by 1.5 percent during 2018."

Respondents in non-manufacturing industries expect the prices they pay for materials and services will increase by 2.2 percent during 2018. They also forecast their overall labor and benefit costs will increase 2.6 percent in 2018. Profit margins are reported to have decreased in the second and third quarters of 2017, and respondents expect them to increase between now and May 2018.

The same four special questions were asked of our non-manufacturing panel.

1. The first special question asked about the difficulty hiring workers to fill open positions in the past six months. The responses from our non-manufacturing panel, with percentages of the total number of responses noted, were "Yes" (61.1%), "No" (32.9%), and "Not applicable (no open positions)" (6.0%).

2. The second special question asked if the firm had raised wages to recruit new hires. The responses from our non-manufacturing panel, with percentages of the total number of responses noted, were "Yes" (37.3%), "No" (57.2%), and "Not applicable" (5.4%).

3. The third special question asked if the firm had offered additional training to new hires. The responses from our non-manufacturing panel, with percentages of the total number of responses noted, were "Yes" (52.1%), "No" (40.7%), and "Not applicable" (7.2%).

4a. The fourth special question asked whether the firm has increased, decreased or left unchanged its capital spending plans for the next 12 months. The responses from our non-manufacturing panel, with percentages of the total number of responses noted, were "Increased capital spending plans" (35.5%), "Decreased capital spending plans" (22.3%), and "No change to capital spending plans" (42.2%).

4b. When asked "why" in response to the previous question; 66.9 percent of respondents reported "General Business Outlook", (4.3%) of respondents reported "Prospects for Business Tax Reform," (1.8%) reported "Prospects for Regulatory Reform", (11.7%) reported "Other" and (15.3%) reported "Not Applicable".

OPERATING RATE

Manufacturing
Manufacturing purchasing and supply executives report their companies are currently operating at 85.8 percent of normal capacity. This is a 3.3 percent increase when compared to May 2017 (82.5%), and also an increase when compared to December 2016 (81.9%). The following 10 industries — listed in order — are operating at or above the average rate of 85.8 percent: Paper Products; Wood Products; Petroleum & Coal Products; Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Computer & Electronic Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Transportation Equipment; and Chemical Products.

Non-Manufacturing
Non-manufacturing supply executives report their organizations are currently operating at 91.9 percent of normal capacity. This is higher than the 86.9 percent reported in May 2017, and the 85.2 percent reported in December 2016. 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 91.9 percent — listed in order — are: Health Care & Social Assistance; Arts, Entertainment & Recreation; Educational Services; Utilities; Accommodation & Food Services; Management of Companies & Support Services; Real Estate, Rental & Leasing; and Public Administration.

PRODUCTION CAPACITY

Manufacturing
Production capacity in manufacturing increased 4.3 percent in 2017, as 46 percent of purchasing and supply executives reported an average capacity increase of 10.5 percent, 6 percent reported an average decrease of 9.8 percent, and 48 percent reported no change. This compares to a predicted increase in production capacity of 3.3 percent for 2017 made in May 2017. Expectations for 2018 are for an increase of 2.7 percent. The 17 industries that report achieving an increase in production capacity in 2017 — listed in order — are: Textile Mills; Electrical Equipment, Appliances & Components; Wood Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Printing & Related Support Activities; Machinery; Primary Metals; Plastics & Rubber Products; Paper Products; Transportation Equipment; Computer & Electronic Products; Chemical Products; Furniture & Related Products; and Petroleum & Coal Products.

The principal means of achieving increases in production capacity in 2017 were (in order of importance):

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

Non-Manufacturing
The capacity to produce products or provide services in the non-manufacturing sector increased 2.9 percent during 2017. This compares to the 1.9 percent increase reported in December 2016 for the year 2016, and is greater than May 2017 prediction of a 2.7 percent increase for 2017. For 2018, an increase of 3.4 percent is predicted. For 2017, 32 percent of non-manufacturing supply managers indicate increases averaging 10.9 percent, and 6 percent of respondents indicate decreases averaging 9.4 percent. Sixty-two percent see no change in their capacity. The 15 industries reporting increases in capacity in 2017 — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Arts, Entertainment & Recreation; Management of Companies & Support Services; Wholesale Trade; Information; Construction; Health Care & Social Assistance; Real Estate, Rental & Leasing; Retail Trade; Professional, Scientific & Technical Services; Transportation & Warehousing; Public Administration; Educational Services; Finance & Insurance; and Accommodation & Food Services.

The principal means of achieving increases in production capacity in 2017 were (in order of importance):

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

CAPITAL EXPENDITURES — 2017 vs. 2016

Manufacturing
Purchasing and supply managers' report 2017 capital expenditures increased 8.7 percent on average when compared to 2016 levels. The actual expenditures for 2017 were above survey respondents' previous expectations, as they predicted an increase of 5.2 percent for 2017 in May 2017. The 44 percent of purchasers who reported increased capital expenditures in 2017 indicated an average increase of 28.5 percent, while the 15 percent who said their capital spending was reduced reported an average decrease of 26.5 percent. Forty-one percent of respondents said they spent the same in 2017 as in 2016. The 14 industries showing increases in capital expenditures for 2017 — listed in order of percentage increase — are: Furniture & Related Products; Wood Products; Computer & Electronic Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Textile Mills; Food, Beverage & Tobacco Products; Primary Metals; Chemical Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Paper Products; Nonmetallic Mineral Products; and Printing & Related Support Activities.

Non-Manufacturing
Non-manufacturing supply management executives report their level of capital expenditures in 2017 increased 7 percent compared to 2016. This is less than the 10.6 percent increase reported for 2016 one year ago, and more than the 5.2 percent increase predicted by respondents in May 2017. Thirty-nine percent of respondents report increases averaging 25.4 percent. An additional 11 percent report decreases averaging 26.5 percent. Fifty percent indicate they spent the same on capital expenditures in 2017 as in 2016. The 12 industries experiencing increases in capital expenditures in 2017 — listed in order — are: Arts, Entertainment & Recreation; Construction; Wholesale Trade; Health Care & Social Assistance; Public Administration; Transportation & Warehousing; Professional, Scientific & Technical Services; Utilities; Retail Trade; Accommodation & Food Services; Real Estate, Rental & Leasing; and Management of Companies & Support Services.

PREDICTED CAPITAL EXPENDITURES — 2018 vs. 2017

Manufacturing
Purchasing and supply executives expect capital expenditures to increase 2.7% percent in 2018. The 41 percent of respondents who predict increased capital expenditures in 2018 indicate an average increase of 20.4 percent, while the 17 percent who said their capital spending would be reduced predict an average decrease of 31.2 percent. Forty-two percent said they expect to spend the same in 2018 as in 2017. The 13 industries predicting increases in capital expenditures for 2018 — listed in order of percentage increase — are: Wood Products; Petroleum & Coal Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Textile Mills; Paper Products; Chemical Products; Printing & Related Support Activities; Machinery; Primary Metals; and Nonmetallic Mineral Products.

Non-Manufacturing
Non-manufacturing purchasing and supply executives are expecting an increase of 3.8 percent in capital expenditures in 2018, less than the increase of 7 percent they are reporting for 2017. The 45 percent of respondents expecting to spend more on capital expenditures predict an average increase of 16.6 percent. An additional 13 percent anticipate a decrease averaging 26.3 percent. Forty-two percent expect to spend the same on capital expenditures in 2018 as in 2017. The 13 industries expecting increases in capital expenditures in 2018 — listed in order of percentage increase — are: Utilities; Public Administration; Transportation & Warehousing; Real Estate, Rental & Leasing; Retail Trade; Professional, Scientific & Technical Services; Information; Health Care & Social Assistance; Management of Companies & Support Services; Other Services; Finance & Insurance; Mining; and Wholesale Trade.

PRICES — Changes Between End of 2016 and End of 2017

Manufacturing
After an earlier forecast in May 2017 of a 2.5 percent increase in prices paid for raw materials in 2017, survey respondents now report realized price increases averaging 2.1 percent for the year 2017. The 60 percent who say their prices are higher now than at the end of 2016 report an average increase of 4.5 percent, while the 16 percent who report lower prices averaged a 4.1 percent decrease. The remaining 24 percent indicate no change between the end of 2017 and the end of 2016. The 14 industries experiencing average price increases in 2017 — listed in order — are: Wood Products; Textile Mills; Fabricated Metal Products; Plastics & Rubber Products; Chemical Products; Paper Products; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Machinery; Furniture & Related Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Miscellaneous Manufacturing; and Printing & Related Support Activities.

Non-Manufacturing
As 2017 draws to a close, non-manufacturing supply managers report prices they pay have increased by 1.6 percent this year. This is slightly more than the 1.5 percent increase they predicted in May 2017, and less than the 1.8 percent increase predicted for 2017 one year ago. Fifty-four percent of purchasers' report price increases averaging 4.8 percent. Thirteen percent of purchasers indicate decreased prices with an average reduction of 6.8 percent, and 33 percent of respondents have not experienced overall price changes this year. The 11 industries reporting price increases in 2017 — listed in order — are: Construction; Wholesale Trade; Professional, Scientific & Technical Services; Accommodation & Food Services; Arts, Entertainment & Recreation; Public Administration; Transportation & Warehousing; Finance & Insurance; Educational Services; Utilities; and Real Estate, Rental & Leasing.

PRICES – Predicted Changes Between End of 2017 and May 2018

Manufacturing
Fifty-seven percent of purchasing and supply managers expect the prices they pay to increase in early 2018 by an average of 3.2 percent. At the same time, 14 percent anticipate decreases averaging 3.4 percent. Including the 29 percent who expect no change in prices in the first four months of 2018, purchasers expect the net average overall price change to increase 1.3 percent. The 11 industries predicting a higher than 1.3 percent average increase in prices paid in the first part of 2018 — listed in order — are: Wood Products; Textile Mills; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Primary Metals; Chemical Products; Fabricated Metal Products; Paper Products; Plastics & Rubber Products; Nonmetallic Mineral Products; and Machinery.

Non-Manufacturing
Non-manufacturing survey respondents predict their purchases in the first four months of 2018 will cost an average of 1.1 percent more than at the end of 2017. This is more than the 0.5 percent decrease reported in the preceding section for all of 2017. Considering the prediction of a price change for all of 2018 (2.2 percent), purchasing and supply executives expect most of next year's price increases to occur in the second part of next year. Fifty-seven percent of non-manufacturing respondents predict the prices they pay will increase an average of 3.4 percent in the first part of 2018. Ten percent of respondents expect price decreases averaging 7.2 percent. The remaining 33 percent predict no change in prices in the first four months of 2018. The nine industries predicting greater than or equal to the 1.1 percent average increase in prices they expect to pay in the first part of 2018 — listed in order of percentage increase — are: Mining; Public Administration; Construction; Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Health Care & Social Assistance; Finance & Insurance; and Arts, Entertainment & Recreation.

PRICES — Predicted Changes Between End of 2017 and End of 2018

Manufacturing
Respondents predict a net average increase in prices paid of 1.8 percent between December 2017 and December 2018, indicating they expect prices to increase an additional 0.5 percent during the period of May 2018 through December 2018. Sixty percent of respondents expect an average price increase of 3.9 percent for the full year of 2018, while 17 percent expect an average reduction of 3.2 percent. The remaining 23 percent expect no change in their average prices paid for the year 2018. The 11 industries expecting to receive increases above the predicted average of 1.8 percent by the end of 2018 — listed in order — are: Wood Products; Textile Mills; Nonmetallic Mineral Products; Primary Metals; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Printing & Related Support Activities; Paper Products; Chemical Products; Plastics & Rubber Products; and Machinery.

Non-Manufacturing
For all of 2018, non-manufacturing supply management executives expect their prices to increase an average of 2.2 percent. Sixty-three percent of respondents expect increases averaging 4.5 percent, 10 percent anticipate prices to drop an average of 6.5 percent, and 27 percent foresee no change in prices during the next year. The seven industries expecting greater than the 2.2 percent average price increase by the end of 2018 — listed in order of percentage increase — are: Construction; Retail Trade; Public Administration; Professional, Scientific & Technical Services; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; and Accommodation & Food Services.

LABOR AND BENEFIT COSTS — Predicted Rate Change End of 2017 vs. End of 2018

Manufacturing
Purchasing and supply executives expect higher overall labor and benefit costs for 2018. Sixty-seven percent of respondents expect increased labor and benefit costs and expect them to grow by an average of 3.3 percent for all of 2018, while the 4 percent forecasting lower costs see them decreasing by an average of 2.7 percent. Including the 29 percent of respondents who believe costs will remain the same, the overall net rate of increase is expected to be 2.1 percent between the end of 2017 and the end of 2018. The 10 industries expecting to pay an increase of 2.1 percent or greater — listed in order of percentage increase — are: Textile Mills; Wood Products; Fabricated Metal Products; Nonmetallic Mineral Products; Furniture & Related Products; Paper Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Machinery; and Chemical Products.

Non-Manufacturing
Purchasing and supply executives expect a 2.6 percent increase in labor and benefit costs for non-manufacturing industries in 2018. Sixty-four percent of respondents expect such costs to increase by an average of 4.4 percent. Another 3 percent of respondents expect labor and benefit costs to shrink by an average of 8.8 percent, and 33 percent believe costs will remain stable during 2018. The eight industries expecting to pay an increase of 2.6 percent or higher — listed in order of percentage increase — are: Construction; Mining; Wholesale Trade; Agriculture, Forestry, Fishing & Hunting; Information; Accommodation & Food Services; Retail Trade; and Public Administration.

EMPLOYMENT — Change in Overall Employment

Manufacturing
ISM's Manufacturing Business Survey Committee members report that manufacturing employment increased 2.3 percent in 2017 relative to 2016, and forecast that employment will increase by 1.2 percent, on average, for the full year of 2018 relative to 2017. Forty-four percent of respondents expect employment to be 4.8 percent higher in 2018, while 10 percent predict employment to be lower by 9.7 percent. The remaining 46 percent of respondents expect their employment levels to be unchanged in 2018. The 13 industries predicting increases in employment in 2018 — listed in order — are: Fabricated Metal Products; Miscellaneous Manufacturing; Textile Mills; Plastics & Rubber Products; Machinery; Paper Products; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Primary Metals; Chemical Products; Printing & Related Support Activities; Furniture & Related Products; and Transportation Equipment.

Non-Manufacturing
ISM's Non-Manufacturing Business Survey Committee members report that non-manufacturing employment has increased 1.9 percent since May 2017. They forecast that employment will increase 1.5 percent by the end of 2018. In the coming year, 44 percent of respondents expect higher levels of employment, 14 percent anticipate lower levels, and 42 percent expect their employment levels to be unchanged. The 13 industries anticipating increases in their employment in 2018 — listed in order — are: Accommodation & Food Services; Construction; Retail Trade; Public Administration; Wholesale Trade; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Information; Health Care & Social Assistance; Arts, Entertainment & Recreation; Educational Services; Mining; and Management of Companies & Support Services.

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 2018)

Manufacturing
The responses for this semiannual report indicate purchasers see increases in new export orders for the first half of 2018. Of the 84 percent of respondents who export, 41 percent predict an increase (39 percent moderate and 2 percent substantial) over the next six months. Eight percent of respondents (8 percent moderate and 0 percent substantial) predict a decrease in their exports, and 51 percent anticipate no change in exports over the next six months. The 10 industries expecting growth in exports during the first half of 2018 — listed in order — are: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Computer & Electronic Products; Paper Products; Chemical Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Transportation Equipment; Machinery; and Plastics & Rubber Products.

Non-Manufacturing
For the first half of 2018, non-manufacturing supply managers who report that their organizations engage in exporting are optimistic concerning their export business. Of the 26 percent of non-manufacturing business survey respondents who report that they export, 39 percent predict an increase (39 percent moderate and 0 percent substantial) over the next six months. Twelve percent of the respondents expect a decrease in their exports (7 percent moderate and 5 percent substantial), and 49 percent anticipate no change in exports over the next six months. Of the industries that report they export, the eight industries expecting growth in export business in the first half of 2018 — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Public Administration; Wholesale Trade; Accommodation & Food Services; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Health Care & Social Assistance; and Information.

IMPORT BUSINESS — Predicted Change for Next Half Year (First Half of 2018)

Manufacturing
Purchasers expect increases in imports in the first half of 2018. Of the 87 percent of purchasers who reported they import, 37 percent predict an increase in their imports over the next six months (34 percent moderate and 3 percent substantial), while 8 percent predict a decrease in imports of materials (8 percent moderate and 0 percent substantial). Fifty-five percent of survey respondents expect no change in imports in the first half of 2018. The 12 industries expecting growth in imports — listed in order — are: Petroleum & Coal Products; Chemical Products; Computer & Electronic Products; Miscellaneous Manufacturing; Transportation Equipment; Fabricated Metal Products; Machinery; Furniture & Related Products; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; and Electrical Equipment, Appliances & Components.

Non-Manufacturing
Non-manufacturers have higher expectations for the use of imports for the first half of 2018 than they did in December 2016 for the first half of 2017. Of the 49 percent of non-manufacturing organizations who reported they import, 42 percent (40 percent moderate and 2 percent substantial) predict an increase in their imports during the first half of 2018. Ten percent of respondents (9 percent moderate and 1 percent substantial) predict a decrease in imports of materials and services. The remaining 48 percent of purchasers expect no change in imports over the next six months. The 10 industries expecting growth in imports — listed in order — are: Transportation & Warehousing; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Management of Companies & Support Services; Wholesale Trade; Retail Trade; Health Care & Social Assistance; Mining; Professional, Scientific & Technical Services; and Construction.

INVENTORY-TO-SALES RATIO

Manufacturing
Of the 97 percent of manufacturing purchasers who answered this question, 16 percent anticipate increasing their purchased inventory-to-sales ratio during 2018. An additional 17 percent expect their ratio to drop, and 67 percent see no change. The diffusion index of 49.5 percent suggests the inventory-to-sales ratio will contract in 2018.

Non-Manufacturing
Of the 77 percent of non-manufacturing purchasers who answered this question, 11 percent anticipate increasing their purchased inventory-to-sales ratio during 2018. An additional 6 percent expect their ratio to drop, and 83 percent see no change. The diffusion index of 52.5 percent suggests the inventory-to-sales ratio will increase in 2018.

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 2018 — Manufacturing Only

Manufacturing
Purchasing and supply executives are expecting the U.S. dollar will strengthen in 2018 against all the foreign currencies listed below. The average diffusion index for this forecast is 58.2 percent, a decrease of 3 percentage points over the December 2016 forecast average of 61.2 percent for 2017.

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 — 2017 vs. 2016

Manufacturing
Summarizing revenues for 2017, 61 percent of respondents say revenue was better than 2016, and that revenues increased an average of 8.7 percent over 2016. Fifteen percent say their revenues decreased in 2017 by an average of 8.1 percent, and the remaining 24 percent indicate no change. Overall, purchasing and supply executives indicate a net increase of 4.1 percent in business revenues for 2017 over 2016. This is less than the 4.4 percent increase that was forecast in May 2017 for all of 2017, and less than the 4.6 percent increase predicted in December 2016 for all of 2017. The 16 industries reporting increases (highest to lowest) in revenues in 2017 — listed in order — are: Fabricated Metal Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Plastics & Rubber Products; Paper Products; Chemical Products; Printing & Related Support Activities; Transportation Equipment; Machinery; Furniture & Related Products; Primary Metals; and Textile Mills.

Non-Manufacturing
Non-manufacturing supply management executives report that business revenues for 2017 have increased compared to 2016 by 5.7 percent. This is more than the 4.1 percent increase predicted in May 2017 for all of 2017. The 55 percent of respondents reporting better business in 2017 than in 2016 estimate an average revenue increase of 13.5 percent. This is in contrast to an average decrease of 10.1 percent reported by the 19 percent of respondents who indicate worse business in 2017. The remaining 26 percent have experienced no change in 2017 from 2016. The 14 industries reporting increases in revenues in 2017 — listed in order — are: Information; Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Wholesale Trade; Real Estate, Rental & Leasing; Retail Trade; Health Care & Social Assistance; Construction; Finance & Insurance; Transportation & Warehousing; Professional, Scientific & Technical Services; Arts, Entertainment & Recreation; Educational Services; and Public Administration.

Business Revenues Prediction for 2018

Manufacturing
Manufacturing survey respondents forecast that business revenues for 2018 will be stronger than in 2017. The 70 percent of respondents forecasting better business revenues in 2018 than in 2017 estimate an average increase of 7.8 percent in their organizations' revenues. This is in contrast to an average decrease of 7.2 percent forecast by the 4 percent who predict lower business revenues in 2018. Including the 26 percent who see no change in 2018, the forecast for overall net increase in business revenues for 2018 over 2017 is 5.1 percent. The 16 manufacturing industries expecting revenue improvement in 2018 over 2017 — listed in order — are: Fabricated Metal Products; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Machinery; Miscellaneous Manufacturing; Computer & Electronic Products; Transportation Equipment; Plastics & Rubber Products; Primary Metals; Paper Products; Textile Mills; Chemical Products; Food, Beverage & Tobacco Products; Furniture & Related Products; Printing & Related Support Activities; and Petroleum & Coal Products.

Non-Manufacturing
Non-manufacturing survey respondents forecast that business revenues for 2018 will be improved over 2017 by an average of 6 percent. This is greater than the 5.7 percent increase reported for 2017, and more than the 4.1 percent increase predicted one year ago for 2017 revenues over 2016 revenues. The 59 percent of respondents forecasting better business in 2018 than in 2017 estimate an average revenue increase of 11.1 percent. This is in contrast to an average decrease of 5.7 percent forecast by the 10 percent who predict worse business in 2018. The remaining 31 percent see no change in 2018. The 17 industries expecting increases in revenues in 2018 — listed in order of percentage increase — are: Information; Professional, Scientific & Technical Services; Construction; Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Retail Trade; Real Estate, Rental & Leasing; Transportation & Warehousing; Wholesale Trade; Other Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Finance & Insurance; Educational Services; Accommodation & Food Services; Public Administration; and Mining.

PROFIT MARGINS

Manufacturing
Survey respondents report that profit margins increased on average during the second and third quarters of 2017, as 35 percent experienced an increase in profit margins, 24 percent had lower margins, and 41 percent reported no change. Overall, expectations are higher between now and May 2018 as 44 percent of respondents forecast better profit margins, 11 percent predict lower profit margins, and 45 percent predict no change. The 14 industries expecting an increase in profit margins through May 2018 — listed in order of percentage increase — are: Miscellaneous Manufacturing; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Textile Mills; Chemical Products; Primary Metals; Plastics & Rubber Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Paper Products; Computer & Electronic Products; Nonmetallic Mineral Products; Transportation Equipment; and Machinery.

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 21 percent experienced an increase in profit margins during the second and third quarters of 2017, while 22 percent found smaller profit margins, and 57 percent had no change in margins during the same period. From now through May 2018, 37 percent of supply managers expect improved profit margins, 14 percent expect lower profit margins, and the remaining 49 percent of respondents anticipate no change in their profit margins. The 10 industries expecting an increase in profit margins through May 2018 — listed in order of percentage increase — are: Arts, Entertainment & Recreation; Retail Trade; Construction; Real Estate, Rental & Leasing; Transportation & Warehousing; Management of Companies & Support Services; Mining; Wholesale Trade; Finance & Insurance; and Professional, Scientific & Technical Services.

BUSINESS COMPARISON

The First Half of 2018 Compared with Last Half of 2017

Manufacturing
Survey respondents are optimistic about the next six months as reflected in a diffusion index of 73.5 percent. Comparing their outlook for the first half of 2018 to the last half of 2017, 54 percent predict it will be better, 7 percent predict it will be worse, and 39 percent expect no change. The 15 industries expecting improvement in the first half of 2018 — listed in order — are: Textile Mills; Fabricated Metal Products; Primary Metals; Miscellaneous Manufacturing; Printing & Related Support Activities; Machinery; Food, Beverage & Tobacco Products; Paper Products; Plastics & Rubber Products; Chemical Products; Petroleum & Coal Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Computer & Electronic Products; and Nonmetallic Mineral Products.

Non-Manufacturing
The first half of 2018 is predicted to be better than the last half of 2017, according to non-manufacturing purchasing and supply managers. The diffusion index indicating current expectations is 67 percent. Forty-six 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 42 percent predict no change. The 15 industries expecting improvement in the first half of 2017 — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Real Estate, Rental & Leasing; Mining; Transportation & Warehousing; Public Administration; Construction; Arts, Entertainment & Recreation; Educational Services; Professional, Scientific & Technical Services; Finance & Insurance; Accommodation & Food Services; Wholesale Trade; Health Care & Social Assistance; and Retail Trade.

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 2018 Compared with the First Half of 2018

Manufacturing
Purchasing and supply executives are more optimistic about the second half of 2018 compared to the first half of 2018. The percentage of survey respondents who forecast the second half of 2018 to be better than the first half is 45 percent, while 5 percent expect it to be worse, and 50 percent expect no change. The diffusion index for the second half of 2018 is 70 percent, compared to 73.5 percent for the first half of 2018. The 15 industries predicting improvement in the second half of 2018 — listed in order — are: Furniture & Related Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Fabricated Metal Products; Chemical Products; Food, Beverage & Tobacco Products; Machinery; Paper Products; Printing & Related Support Activities; Primary Metals; Petroleum & Coal Products; Nonmetallic Mineral Products; Transportation Equipment; and Plastics & Rubber Products.

Non-Manufacturing
Non-manufacturing purchasing and supply executives feel more optimistic about the second half of 2018 than for the first half of the year (diffusion index for the second half is 68.5 percent and the first half is 67 percent). The percentage of respondents who currently forecast the second half of 2018 to be better than the first half is 46 percent, while 9 percent expect it to be worse. An additional 45 percent of purchasers expect no change. The 15 industries expecting improvement in the second half of 2018 — listed in order — are: Transportation & Warehousing; Retail Trade; Management of Companies & Support Services; Mining; Arts, Entertainment & Recreation; Educational Services; Professional, Scientific & Technical Services; Wholesale Trade; Real Estate, Rental & Leasing; Information; Public Administration; Finance & Insurance; Construction; Health Care & Social Assistance; and Accommodation & Food Services.

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 2017 reported in December 2016, survey respondents this year are more optimistic about the outlook for 2018. Sixty-seven percent of respondents believe 2018 will be better than 2017. Twenty-nine percent of respondents believe 2018 will be the same as 2017, and 4 percent believe 2018 will be worse than 2017. The resulting diffusion index for the outlook for 2018 is 81.5 percent, compared with 67.5 percent for 2017 from one year ago.

Non-Manufacturing
Non-manufacturing survey respondents are overall more optimistic on their 2018 outlook, compared to their predictions for 2017. Because a larger proportion of respondents this year believe 2018 will be better than 2017 and a smaller proportion of respondents believe 2018 will be worse than 2017, the diffusion index looking forward into 2018 is higher than the diffusion index looking forward into 2017.

SPECIAL QUESTION TOPIC #1: HIRING WORKERS TO FILL OPEN POSITIONS

Manufacturing
We asked the panel "in the past 6 months, has your firm had difficulty hiring workers to fill open positions?" Manufacturing respondents indicated:

• Yes, we have had difficulty hiring: (64.7%)
• No, we have not had difficulty hiring: (33.8%)
• Not applicable (we have not had any open positions): (1.4%)

Non-Manufacturing
We asked the panel "in the past 6 months, has your firm had difficulty hiring workers to fill open positions?" Non-manufacturing respondents indicated:

• Yes, we have had difficulty hiring: (61.1%)
• No, we have not had difficulty hiring: (32.9%)
• Not applicable (we have not had any open positions): (6.0%)

SPECIAL QUESTION TOPIC #2: WAGE INCREASE FOR RECRUITMENT OF NEW HIRES

Manufacturing
We asked the panel, "in the past 6 months, has your firm raised wages to recruit new hires?" Manufacturing respondents indicated:

• Yes: (44.4%)
• No: (53.1%)
• Not applicable: (2.4%)

Non-Manufacturing
We asked the panel, "in the past 6 months, has your firm raised wages to recruit new hires?" Non-manufacturing respondents indicated:

• Yes: (37.3%)
• No: (57.2%)
• Not applicable: (5.4%)

SPECIAL QUESTION TOPIC #3: ADDITIONAL TRAINING FOR NEW HIRES

Manufacturing
We asked the panel "in the past 6 months, has your firm offered additional training for new hires?" Manufacturing respondents indicated:

• Yes: (44.4%)
• No: (50.2%)
• Not applicable: (5.4%)

Non-Manufacturing
We asked the panel "in the past 6 months, has your firm offered additional training for new hires?" Non-manufacturing respondents indicated:

• Yes: (52.1%)
• No: (40.7%)
• Not applicable: (7.2%)

SPECIAL QUESTION TOPICS #4a & #4b: CAPITAL SPENDING PLANS

Manufacturing
We asked the panel "in the past 6 months, has your firm increased, decreased or left unchanged its capital spending plans for the next 12 months? And, why did you say so?" Manufacturing respondents indicated:

• Increased capital spending plans: (39.9%)
• Decreased capital spending plans: (16.3%)
• No change to capital spending plans: (43.8%)

Why?

• Prospects for business tax reform: (5.8%)
• Prospects for regulatory reform: (2.9%)
• General business outlook: (66%)
• Other: (13.6%)
• Not applicable: (11.7%)

Non-Manufacturing
We asked the panel "in the past 6 months, has your firm increased, decreased or left unchanged its capital spending plans for the next 12 months? And, why did you say so?" Non-manufacturing respondents indicated:

• Increased capital spending plans: (35.5%)
• Decreased capital spending plans: (22.3%)
• No change to capital spending plans: (42.2%)

Why?

•  Prospects for business tax reform: (4.3%)
• Prospects for regulatory reform: (1.8%)
• General business outlook: (66.9%)
• Other: (11.7%)
• Not applicable: (15.3%)

SUMMARY

Manufacturing
The manufacturing sector is currently expanding, and the forecast indicates that it will continue to expand in the first half of 2018, and expand at a slightly higher rate in the second half of 2018.

• Operating rate is currently at 85.8 percent.
• Production capacity increased by 4.3 percent in 2017.
• Production capacity is expected to increase by 2.7 percent in 2018.
• Capital expenditures increased 8.7 percent in 2017.
• Capital expenditures are expected to increase 2.7 percent in 2018.
• Prices paid increased 2.1 percent in 2017.
• Overall, 2018 prices paid are expected to increase 1.8 percent.
• Labor and benefit costs are expected to increase 2.1 percent in 2018.
• Manufacturing employment is expected to increase 1.2 percent in 2018.
• Expect growth in U.S. exports in 2018.
• Expect growth in U.S. imports in 2018.
• Manufacturing revenues are up 4.1 percent in 2017.
• Manufacturing revenues are expected to increase 5.1 percent in 2018.
• The U.S. dollar is expected to strengthen versus all major trading partner currencies in 2018.
• Overall, manufacturing supply manager have an optimistic outlook, with 96 percent of respondents predicting 2018 will be the same as or better than 2017.

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 91.9 percent.
• Production capacity increased 2.9 percent in 2017.
• Production and provision capacity is expected to increase 3.4 percent in 2018.
• Capital expenditures increased 7 percent in 2017.
• Capital expenditures are expected to increase 3.8 percent in 2018.
• Prices paid increased 1.6 percent in 2017.
• Prices paid are expected to increase 2.2 percent in 2018.
• Labor and benefit costs are expected to increase 2.6 percent in 2018.
• Employment is expected to increase 1.5 percent in 2018.
• Expect export levels to increase in 2018.
• Expect import growth in 2018.
• Non-manufacturing revenues are up 5.7 percent in 2017.
• Non-manufacturing revenues are expected to rise 6 percent in 2018.
• Overall, non-manufacturing supply managers have a mostly positive outlook, with 90 percent of respondents predicting 2018 will be the same as or better than 2017.

*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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