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ISM: Economic improvement to continue in 2025

Economic improvement in the U.S. will continue in 2025, say the nation’s purchasing and supply management executives in the December 2024 ISM Supply Chain Planning Forecast, formerly known as the Semiannual Economic Forecast.

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Revenues are expected to increase in 17 of 18 manufacturing industries and 16 of 18 services-sector industries. Capital expenditures are expected to increase by 5.2% in the manufacturing sector (after a 5.6-percent increase in 2024) and increase by 5.1% in the services sector (after a 2.8-percent increase in 2024).

In 2025, employment is expected to grow by 0.8% in manufacturing and 0.8% in services. After projected growth in manufacturing and services in the first half (H1) of the year, growth in the second half (H2) is projected to accelerate in manufacturing and maintain momentum in the services sector.

These projections are part of the forecast issued by Institute for Supply Management’s (ISM) Business Survey panelists. The forecast was released today by Timothy R. Fiore, CPSM, C.P.M, Chair of the ISM Manufacturing Business Survey Committee, and by Steve Miller, CPSM, CSCP, Chair of the ISM Services Business Survey Committee.

Manufacturing Summary

Expectations for 2025 are positive, as 60% of survey respondents expect revenues to be greater in 2025 than in 2024. The panel of purchasing and supply executives expects a 4.2-percent net increase in overall revenues for 2025, compared to a 0.8 percentage point increase reported for 2024. Sixteen of the 18 manufacturing industries expect revenue improvement in 2025, listed in order of largest to smallest projected increase: Computer & Electronic Products; Machinery; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Transportation Equipment; Miscellaneous Manufacturing; Paper Products; Primary Metals; Plastics & Rubber Products; Chemical Products; Nonmetallic Mineral Products; Wood Products; Printing & Related Support Activities; Furniture & Related Products; and Fabricated Metal Products.

“Manufacturing’s purchasing and supply executives expect to see overall growth in 2025. They are optimistic about overall business prospects for the first half of 2025 and more excited about faster growth in the second half. According to the ISM Report On Business, manufacturing grew for 28 consecutive months from June 2020 through September 2022, was unchanged in October and dipped into contraction in November 2022. The index has remained in contraction since, except for a reading of 50.3% in March 2024. Respondents expect raw materials pricing pressure to ease in 2025 and see first-half 2025 profit margins improving over the second half of 2024. Wages and employment will continue to grow. Manufacturers also predict growth in both exports and imports in 2025,” says Fiore.

In the manufacturing sector, respondents report the companies operating at 82.3% of normal capacity, down 0.5 percentage point from the 82.8% reported in May 2024. Purchasing and supply executives predict that capital expenditures will increase year over year by 5.2% in 2025, compared to a 5.6-percent increase reported for 2024. Manufacturers expect employment in the sector to grow by 0.8 percentage point in 2025 relative to December 2024 levels, while labor and benefit costs are expected to increase an average of 3.3%. Respondents also expect the U.S. dollar to strengthen against the currencies of seven major trading partners in 2025.

The Business Survey Panel predicts that prices paid for raw materials will increase 3% during the first five months of the year, with an overall increase of 3% for 2025. This equates to a reported 3-percent increase in raw materials prices in 2024.

Services Summary
Fifty-nine percent of services supply management executives expect their 2025 revenues to be higher than in 2024. They expect a 3.9-percent net increase in overall revenues for 2025, compared to a 3.7-percent increase reported for 2024. The 17 industries expecting revenue increases in 2025 — listed in order of largest to smallest projected increase — are: Professional, Scientific & Technical Services; Accommodation & Food Services; Other Services; Construction; Management of Companies & Support Services; Mining; Arts, Entertainment & Recreation; Transportation & Warehousing; Retail Trade; Wholesale Trade; Finance & Insurance; Information; Public Administration; Utilities; Real Estate, Rental & Leasing; Educational Services; and Health Care & Social Assistance.

“Services supply executives report operating at 87.4% of normal capacity, less than the 88.6% reported in May 2024. They are optimistic about the first half of 2025 and expect growth to continue in the second half, with a projected increase in capital investment. They forecast that their capacity to produce products and provide services will rise by 2.8% during 2025, and capital expenditures will increase by 5.1%. Services Business Survey Panel members also predict their overall employment will increase by 0.8% during 2025,” says Miller.

Respondents expect the prices they pay for materials and services to increase by 5.3% during 2025. They also forecast that their overall labor and benefit costs will increase 3.5%. Profit margins decreased slightly in the second and third quarters of 2024, but respondents expect growth between now and May 2025.

Ooperating Rate

Manufacturing

Manufacturing purchasing and supply executives report their companies are currently operating at 82.3% of normal capacity. This is a 0.5-percentage point increase when compared to May 2024 (82.8%) and a decrease when compared to December 2023 (83 percent). The following seven industries — listed in order — are operating at or above the average rate of 82.3 percent: Petroleum & Coal Products; Paper Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Wood Products; Chemical Products; and Miscellaneous Manufacturing.

Services
Services supply executives report their organizations are currently operating at 87.4% of normal capacity. This is a decrease compared to the 88.6% reported in May 2024, but above what was reported in December 2023 (86.5 percent). The 12 industries operating at or above the average capacity 

Production Capacity

Manufacturing

Production capacity in manufacturing increased 1.7% in 2024, as 28% of purchasing and supply executives reported an average capacity increase of 10.6%, 12% reported an average decrease of 9.7%, and 60% reported no change. This compares to a May 2024 predicted increase in production capacity of 2.4% for 2024. Expectations for 2025 are for an increase of 4%. The 16 industries that expect an increase in production capacity in 2025 — listed in order — are: Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; Primary Metals; Petroleum & Coal Products; Computer & Electronic Products; Fabricated Metal Products; Machinery; Paper Products; Miscellaneous Manufacturing; Wood Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Textile Mills; Chemical Products; and Nonmetallic Mineral Products.

The principal means of achieving increases in production capacity in 2024 were (in order of importance):

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

Services

The capacity to produce products or provide services in the services sector increased 3.2% during 2024. This is greater than what was predicted in May 2024 (2.6 percent), but 0.9 percentage point lower than the 4.1% predicted for the year in December 2023. For 2025, 37% of services supply managers expect increases averaging 7.9%, and 2% of respondents expect decreases averaging 6.4%. Sixty-one% expect no change in capacity. The 17 industries expecting increases in capacity in 2025 — listed in order — are: Accommodation & Food Services; Other Services; Professional, Scientific & Technical Services; Mining; Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; Wholesale Trade; Construction; Health Care & Social Assistance; Retail Trade; Utilities; Real Estate, Rental & Leasing; Transportation & Warehousing; Public Administration; Information; Finance & Insurance; and Educational Services.

The principal means of achieving increases in production or provision capacity in 2024 were (in order of importance):

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

Captial Expenditures – 2024 versus 2023

Manufacturing

Purchasing and supply executives report 2024 capital expenditures increased 5.2% on average when compared to 2023 levels. Expenditures for 2024 beat survey respondents’ previous expectations, as they predicted an increase of 1% for the year in May 2024. The 33% of purchasers who reported increased capital expenditures in 2024 indicated an average increase of 30%, while the 20% who said their capital spending was reduced reported an average decrease of 21.2%. Forty-seven% of respondents said their spend levels were unchanged in 2024. The 11 industries showing increases in capital expenditures for 2024 — listed in order of percentage increase — are: Food, Beverage & Tobacco Products; Paper Products; Furniture & Related Products; Computer & Electronic Products; Transportation Equipment; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Chemical Products; Fabricated Metal Products; Wood Products; and Machinery.

Services

Services supply management executives report their level of capital expenditures in 2024 increased 2.8% year over year. This is lower than the 3.9% increase reported for 2023 and marginally lower than the 2.9-percent increase predicted by respondents in May 2024. Thirty-two% report increases averaging 16.6%, while 2.2% report decreases averaging 11.8%. Forty-six% indicate they spent the same on capital expenditures in 2024 as in 2023. The 14 industries experiencing increases in capital expenditures in 2024 — listed in order of percentage increase — are: Accommodation & Food Services; Management of Companies & Support Services; Utilities; Health Care & Social Assistance; Public Administration; Educational Services; Mining; Wholesale Trade; Professional, Scientific & Technical Services; Agriculture, Forestry, Fishing & Hunting; Finance & Insurance; Information; Transportation & Warehousing; and Arts, Entertainment & Recreation.

Predicted Captial Expenditures — 2025 versus 2024

Manufacturing

Purchasing and supply executives expect capital expenditures to increase 5.2% in 2025. The 35% of respondents predicting increased capital expenditures in 2025 indicate an average increase of 26.2%, while the 22% who said their capital spending would be reduced predict an average decrease of 19.4%. The remaining 43% said they expect to spend the same in 2025 as in 2024. The 14 industries predicting increases in capital expenditures for 2025 — in the following order — are: Petroleum & Coal Products; Paper Products; Printing & Related Support Activities; Wood Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Primary Metals; Transportation Equipment; Computer & Electronic Products; Machinery; Food, Beverage & Tobacco Products; Textile Mills; Chemical Products; and Miscellaneous Manufacturing.

Services

Services purchasing and supply executives are expecting an increase of 5.1% in capital expenditures in 2025, higher than the 2.8% increase reported for 2024. The 33% of respondents expecting to spend more on capital expenditures predict an average increase of 21%. An additional 17% anticipate a decrease averaging 11%. Fifty% expect to spend the same on capital expenditures in 2025. The 12 industries expecting increases in capital expenditures in 2025 — listed in order of percentage increase — are: Agriculture, Forestry, Fishing & Hunting; Other Services; Accommodation & Food Services; Health Care & Social Assistance; Utilities; Public Administration; Construction; Educational Services; Information; Professional, Scientific & Technical Services; Finance & Insurance; Wholesale Trade; Arts, Entertainment & Recreation; and Transportation & Warehousing.

Prices — Changes Between End of 2023 and End of 2024

Manufacturing

After a May 2024 forecast of a 1.9-percent increase in prices paid for raw materials in 2024, survey respondents report price increases averaging 3% for the year. The 56% who say their prices are higher now than at the end of 2023 report an average increase of 7.5%, while the 20% who report lower prices indicate an average decrease of 6%. The remaining 24% report no change in 2024. The six industries experiencing price increases above the average of 3% in 2024 — listed in order — are: Primary Metals; Textile Mills; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Computer & Electronic Products; and Machinery.

Services

In 2024, services supply executives report, prices paid increased by 5.2%. This is more than the 3.2-percent increase they predicted in May 2024 and more than the 3.4-percent increase for 2024 predicted one year ago. Sixty-seven% of respondents report price increases averaging 8.7%. Ten% indicate decreased prices, with an average reduction of 6%, and 23% of respondents did not experience price changes this year. The four industries experiencing price increases above the average of 5.2% in 2024 are: Real Estate, Rental & Leasing; Other Services; Public Administration; and Educational Services.

Prices – Predicted Changes Between End of 2024 and May 2025

Manufacturing

Fifty-nine percent of purchasing and supply executives expect the prices they pay to increase in the first five months of 2025 by an average of 6%, while 13% anticipate decreases averaging 4%. Including the 28% who expect no change in prices, respondents expect a net average overall price increase of 3% before the end of May. The seven industries predicting an average increase in prices paid of 3% or higher in the first five months of 2025 — listed in order — are: Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Wood Products; Transportation Equipment; Chemical Products; and Primary Metals.

Services

Services survey respondents predict purchases in the first five months of 2025 will cost an average of 4.3% more than at the end of 2024. This is less than the increase reported for calendar year 2024. Sixty% of services respondents predict the prices they pay will increase an average of 8.1% before the end of May, 10% of respondents expect price decreases averaging 5.6%, and the remaining 30% predict no change in prices. The six industries predicting average price increases of at least 4.3% in the first five months of 2025 — listed in order of percentage increase — are: Real Estate, Rental & Leasing; Management of Companies & Support Services; Public Administration; Utilities; Wholesale Trade; and Agriculture, Forestry, Fishing & Hunting.

Prices — Predicted Changes Between End of 2024 and End of 2025

Manufacturing

Respondents predict a net average increase in prices paid of 3.3% between December 2024 and December 2025. Sixty-two% of respondents expect an average price increase of 6.2% in 2025, while 15% expect an average reduction of 5.5%. The remaining 23% expect no change in their average prices paid for the year. The eight industries expecting price increases above the predicted average of 3% by the end of 2025 — listed in order — are: Wood Products; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Furniture & Related Products; Chemical Products; Machinery; and Transportation Equipment.

Services
 For all of 2025, services supply management executives expect their prices to increase an average of 5.3%. Seventy-two% of respondents expect increases averaging 8.3%, 10% anticipate prices to drop an average of 6.3%, and 18% foresee no change in prices next year. The six industries expecting greater than the 5.3-percent average price increase by the end of 2025 — listed in order of percentage increase — are: Management of Companies & Support Services; Real Estate, Rental & Leasing; Public Administration; Agriculture, Forestry, Fishing & Hunting; Wholesale Trade; and Utilities.

Outlook for the Next 12 Months

Manufacturing

The manufacturing sector contracted in November for the eighth consecutive month, and the forecast indicates this trend may reverse in the first half of 2025 with continued strengthening in the second half.

• Operating rate is currently at 82.3 percent.
• Production capacity increased by 1.7% in 2024.
• Production capacity is expected to increase by 4% in 2025.
• Capital expenditures increased 5.6% in 2024.
• Capital expenditures are expected to increase 5.2% in 2025.
• Prices paid increased 3% in 2024.
• Overall, 2025 prices paid are expected to increase 3 percent.
• Labor and benefit costs are expected to increase 3.3% in 2025.
• Manufacturing employment is predicted to increase 0.8 percentage point in 2025.
• U.S. exports growth expected in 2025.
• U.S. imports growth expected in 2025.
• The U.S. dollar is expected to strengthen versus the currencies of seven major trading partners in 2025.
• Manufacturing revenues increased 0.8% in 2024.
• Manufacturing revenues are expected to increase 4.2% in 2025.
• Manufacturing supply managers have a positive outlook, with 43% of respondents predicting 2025 will be better than 2024, and 16% of respondents predicting 2025 will be worse than 2024.

Services

The services sector grew for the 5th month in a row in November, and the forecast indicates continued expansion in 2025.

• Operating rate is currently at 87.4%.
• Production capacity increased 3.2% in 2024.
• Production and provision capacity is expected to increase 2.8% in 2025.
• Capital expenditures increased 2.8% in 2024.
• Capital expenditures are expected to increase 5.1% in 2025.
• Prices paid increased 5.2% in 2024.
• Prices paid are expected to increase 5.3% in 2025.
• Labor and benefit costs are expected to increase 3.5% in 2025.
• Employment is expected to increase 0.8% in 2025.
• Export levels expected to increase in 2025.
• Import growth expected in 2025.
• Services revenues are up 3.7% in 2024.
• Services revenues are expected to rise 3.9% in 2025.
• Services supply managers are positive in their outlook, with 39% of respondents predicting 2025 will improve compared to 2024.

*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.