ISM Forecasts Economic Downturn to Continue Through 2020 and Manufacturing is Expected to Contract in 2020

By Steve Clouther

Category:
Industry Trends

The economic downturn in the U.S. will continue for the rest of 2020, say the nation's purchasing and supply executives in the Spring 2020 Semiannual Economic Forecast.  Expectations for the remainder for 2020 have been clouded by the coronavirus (COVID-19) pandemic; both manufacturing and non-manufacturing sectors are signaling contraction.

These manufacturing projections are part of the forecast issued by the Institute for Supply Management (ISM) Business Survey Committees.

Manufacturing Summary

Revenue for 2020 is expected to decrease, on average, by 10.3 percent. This is 15.1 percentage points lower than the 4.8-percent increase forecast in December 2019 for all of 2020, and 12.2 percentage points lower than the 1.9-percent increase reported for 2019 over 2018.  Eighteen per-cent of respondents say that revenues for 2020 will increase 10.6 per-cent, on average, over 2019.  Conversely, 58 percent say their revenues will decrease, on average, 21.2 percent, and the remaining 24 percent indicate no change.

With 15 of the 18 manufacturing sector industries — including five of the six big industry sectors — predicting revenue declines for 2020, panelists forecast that recovery will likely not occur until near the end of the year.

Manufacturing Operating Rate

Purchasing and supply managers report that their companies are currently operating, on average, at 75.9 percent of normal capacity, 7.8 percentage points less than was reported in December 2019.  The eight industries reporting operating-capacity levels at or above the average rate of 75.9 percent — listed in order — are: Paper Products; Wood Products; Food, Beverage & Tobacco Products; Chemical Products; Petroleum & Coal Products; Apparel, Leather & Allied Products; Computer & Electronic Products; and Electrical Equipment, Appliances & Components.

Manufacturing Production Capacity

Production capacity in manufacturing is expected to decrease 3.6 percent in 2020.  This compares to an increase of 3.1 percent reported for 2019, and a prediction in December 2019 for an increase of 3.3 percent for 2020. Seventeen percent of respondents expect an average capacity increase of 14.7 percent, 28 percent expect decreases averaging 21.5 percent, and 55 percent expect no change.  The five industries expecting production capacity increases for 2020 are: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Wood Products; Paper Products; and Chemical Products.

Manufacturing Predicted Capital Expenditures — 2020 vs. 2019

Survey respondents expect a 19.1-percent decrease in capital expenditures in 2020.  This is lower than the 2.1-percent decrease predicted by the panel in the December 2019 forecast for 2020.  Currently, 10 percent of respondents predict increased capital expenditures in 2020, with an average increase of 26.5 percent, and 56 percent said their capital spending would decrease an average of 38.7 percent.  Thirty-four percent say they will spend the same in 2020 as they did in 2019.  The two industries expecting increases in capital expenditures in 2020 compared to 2019 are Printing & Related Support Activities; and Apparel, Leather & Allied Products.

Manufacturing Prices — Changes Between End of 2019 and May 2020

In the December 2019 forecast, respondents predicted an increase of 0.4 percent in prices paid during the first four months of 2020; they now report prices decreased by 2.8 percent.  The 16 percent who say their prices are higher now than at the end of 2019 report an average increase of 6.6 percent, while the 36 percent who report lower prices indicate an average decrease of 10.6 percent.  The remaining 48 percent report no change for the period. Four manufacturing industries reported an increase in prices paid for the first part of 2020 are: Computer & Electronic Products; Textile Mills; Furniture & Related Products; and Paper Products.

Manufacturing Prices — Predicted Changes Between End of 2019 and End of 2020

Survey respondents expect a net average prices decrease of 1.6 percent for all of 2020, compared to the end of 2019. Twenty-seven percent of respondents project prices to increase by an average of 7.2 percent for the full year, 38 percent anticipate decreases averaging 9.2 percent, and 35 percent expect no change in prices.  The seven industries predicting price increases for all of 2020 — listed in order — are: Printing & Related Support Activities; Computer & Electronic Products; Textile Mills; Furniture & Related Products; Food, Beverage & Tobacco Products; Paper Products; and Miscellaneous Manufacturing.

Manufacturing Employment — Predicted Changes Between End of 2019 and End of 2020

ISM’s Manufacturing Business Survey respondents forecast that manufacturing employment will decrease by 5.3 percent by the end of 2020, compared to the end of 2019.  Twelve percent of respondents expect employment to be 7.6 percent higher, on average, while 39 percent of respondents predict employment to be lower by 15.9 percent.  The remaining 49 percent of respondents expect their employment levels to be unchanged for the remainder of 2020.  The only manufacturing industry expecting growth in employment in 2020 is Paper Products.

Manufacturing Business Revenues Comparison — 2020 vs. 2019

Decreased revenue is expected this year, as purchasing and supply management executives predict an overall net decrease of 10.3 percent in manufacturing business revenue for 2020 over 2019.  This is 15.1 percentage points lower than the 4.8-percent increase forecast in December 2019 for all of 2020, and 12.2 percentage points lower than the 1.9-percent increase reported for 2019 over 2018.  Eighteen percent of respondents say that revenues for 2020 will increase 10.6 percent, on average, over 2019. Conversely, 58 percent say their revenues will decrease, on average, 21.2 percent, and the remaining 24 percent indicate no change.  Of the 18 manufacturing industries, the two that expect revenue growth for 2020 are: Apparel, Leather & Allied Products; and Food, Beverage & Tobacco Products.

Manufacturing Summary

  • Operating rate is currently at 75.9 percent of normal capacity.
  • Production capacity is expected to decrease 3.6 percent in 2020.
  • Capital expenditures are expected to decrease 19.1 percent in 2020.
  • Prices paid decreased 2.8 percent through May 2020.
  • Prices of raw materials are expected to decrease a total of 1.6 percent for all of 2020, indicating an expected increase of 1.2 percent in prices for the remainder of the year.
  • Manufacturing employment is expected to decrease by 5.3 percent by the end of 2020.
  • Manufacturing revenue is expected to decrease 10.3 percent in 2020.
  • Overall, manufacturing is expected to shrink in 2020.

 

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