The Institute for Supply Management’s (ISM) Semiannual Economic Forecast, which was issued last week, provided a deep dive into how both manufacturing and non-manufacturing purchasing and supply management executives view what could be in store for 2020, in terms of key benchmarks like revenue growth, capital expenditures, and capacity utilization among others.
But what this excellent biannual report also offers up–and should not be overlooked-are what the ISM refers to as its “special questions,” which typically touch upon what could be viewed as supply chain subsets, if you will, and they should not be overlooked.
And this year was no exception, with the ISM’s special questions focusing on hiring workers to fill open positions, capital spending plans, and tariffs, three topics that clearly are top of mind in supply chain and logistics circles.
Looking at hiring, it does not come as a surprise that both manufacturing and non-manufacturing respondents reported having a difficult time hiring workers to fill open positions over the last six months, given that unemployment remains at its lowest level in decades, with 70.4% for manufacturing and 69.4% on the non-manufacturing.
By a significant percentage, ISM respondents indicated that raising wages, or using other forms of monetary compensation, to recruit new hires, was the runaway solution with 39.9% saying that is the case for manufacturing and 29.6% stating for same for non-manufacturing.
As for capital spending, the results were varied but with a degree of overlap. When asked if, over the last six months, if their companies have increased, decreased, or left capital spending plans unchanged for the next 12 months, 38.7% and 36.9%, for manufacturing and non-manufacturing, respectively, said there is no change to their capital spending plans.
Conversely, 26.7% of manufacturing respondents and 35.8% of non-manufacturing respondents said they would increase capital spending plans. And 34.6% of manufacturing respondents and 27.4% of non-manufacturing respondents plan to decrease spending.
Reasons cited for changing capital spending plans included: domestic economic conditions (38.4% for manufacturing and 37.5% for non-manufacturing); implemented tariffs (3.4% for manufacturing and 4.4% for non-manufacturing); and uncertainty surrounding trade policy (7.5% for manufacturing and 2.9% for non-manufacturing). Additional reasons included things along the lines of foreign economic conditions, regulatory reform, and business tax reform, among others.
ISM Non-Manufacturing Business Survey Committee Chair Tony Nieves explained that it was not surprising to see a top-heavy response for domestic economic conditions.
“It is more about ‘where is revenue going?’ and companies tend to want to keep their powder dry in a storm, so to speak,” he said. “And what is unknown with the geopolitical concerns we have right now, it remains to be seen what will be the next administration [White House] going forward, and if it will be business-friendly. We don’t know where that is going to wind up right now.”
And Tim Fiore, ISM Manufacturing Business Survey Committee Chair, observed that, for manufacturing, the 26.7% indicating they are increasing capital spending plans is down compared to the 34.7% tally in the previous ISM Semiannual report.
“There is an easing with capex going on, with more of an operating for cash going on with some growth on the revenue side and prices and labor costs easing as companies have an eye on cash generation and getting back to more profitability compared to 2019,” he said.
Perhaps the most telling questions were those related to the all-consuming topic of tariffs.
When asked if they are evaluating new sources of supply and/or changes to their existing footprint as a result of U.S. tariffs, 53.1% of manufacturing and 43.9% of non-manufacturing respondents said they are evaluating new sources of supply. And 4.2% of manufacturing respondents and 1.3% of non-manufacturing respondents plan to change their existing footprints. As for a dual approach, 43.9% of manufacturing respondents and 14.6% of non-manufacturing respondents said that would be the case.
An additional tariff-related question asked respondents if their companies are evaluating new sources of supply and changes to their existing manufacturing footprints as a result of counter-tariffs. That saw 42.5% of manufacturing respondents say they are, with 31.8% echoing the same on the non-manufacturing side.
Fiore explained that these data points speak to how companies have been clearly taking action, due to the impact of tariffs, over the last nine months, which is not going away in the short-term.
It goes without saying that this report provides detailed perspective from both sides of the domestic economy, manufacturing and consumer, which have been trending in different directions, of late. But, as the data indicates, many of the same issues exist for both groupings. With uncertainty in the air for things like trade and the economy, not to mention the 2020 Presidential election, it stands to reason that this report’s special questions will continue to provide deeper takes on various supply chain issues.
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