US manufacturing, services see continued growth

US manufacturing, services see continued growth

US manufacturing
The Institute for Supply Management's manufacturing index unexpectedly rose 1.6 points from October's reading to 59.3, though it was still lower than September's level. (AFP/Robyn Beck)

WASHINGTON: US manufacturing and services firms expect to see a stronger economy and rising revenue into 2018, according to a semi-annual survey released on Monday (Dec 11).

The companies project no let-down after many months of continuous growth, with the upbeat outlook across nearly all industries, the Institute of Supply Management's latest economic forecast showed.

However, worker shortages and facilities operating at very high capacity mean more investment will be needed if the growth is to continue.

The Republican tax plan currently working its way through Congress could prompt companies to step up their spending, but that will not become apparent until early next year when the details, ISM officials said.

"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," said Timothy R. Fiore, chair of the ISM Manufacturing Business Survey Committee.

Manufacturing revenues are expected to rise 7.8 per cent next year, with 70 per cent of firms projecting increased earnings, according to the survey. Only four per cent of companies expected business to worsen, while a quarter see no change.

In the dominant services sector, the outlook is upbeat albeit slightly less rosy, with the average increase expected to be six per cent, and 59 per cent of companies expecting business to improve. Just 10 per cent of firms expect business to decline.

WORKER SHORTAGE

However, well over 60 per cent of the firms in manufacturing and services report difficulty finding workers to fill open positions, according to the survey.

As a result 44 per cent of manufacturing firms, and 37 per cent of services companies reporting raising wages to attract employees.

And many report having to train new hires, which Fiore said is an indications they are "bringing in people who aren't really qualified for the job."

Manufacturers expect employment will grow by 1.2 per cent next year, while labour and benefit costs are expected to increase an average of 2.1 per cent next year, although Fiore said wages could rise further if worker shortages continue and as companies work to retain skilled employees.

Services firms see employment rising 1.5 per cent, and wages and benefits increasing 2.6 per cent.

Anthony Nieves, chair of ISM's Non-Manufacturing Business Survey Committee, told AFP the construction sector especially is seeing problems finding skilled labour, which he partly attributes to changing attitudes of young people not following in their parents' footsteps.

But he also noted that "shutting down sources of labour outside the country probably had some impact."

President Donald Trump has taken a hard line on immigration, especially illegal immigration, and arrivals from Mexico and other countries to the south of the United States have dropped off while arrests of illegal immigrants have soared.

INVESTMENT RISING?

Capital expenditures - investment in plant and equipment - which is a major driver in the US economy, are expected to increase by 2.7 per cent in the manufacturing sector and by 3.8 per cent in the non-manufacturing sector.

However, Fiore noted that within that seemingly modest increase there are some big increases: of the 41 per cent who expect to increase capital spending, the average increase was 20 per cent.

"That's a serious number," he told reporters, noting that the six major manufacturing industries are among those planning to increase spending.

And "you could really see it taking off" once the tax cuts are passed.

For the services industries, the average increase among those firms planning to boost investment is nearly 17 per cent.

The survey showed industries expect only modest increases in costs for materials, rising 2.2 per cent for the services sector and 1.8 per cent for manufacturing inputs, slightly less than in 2017.

Source: AFP/de

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