2016 US Manufacturing Growth Forecast: Why ISM Economic Outlook Bodes Well

by Taras Berezowsky on DECEMBER 9, 2015

On Dec. 8, the Institute for Supply Management (ISM) released its 2015 semi-annual forecast, surveying both the manufacturing and non-manufacturing sectors. The outlook for both sectors, it turns out, is positive.

I sat down with Lisa Reisman, executive editor of MetalMiner, who spoke with ISM’s Bradley Holcomb and Anthony Nieves, to find out how this data compares to what she is seeing within the organizations that make up MetalMiner’s audience — OEMs, tiered suppliers, service centers, metal producers and mining firms.

Taras Berezowsky: Lisa, the economic outlook for 2016 appears surprisingly bright — revenue growth of 4.1%, and a capex increase of 1.0% with current capacity utilization at 81.6% (up from 79.5% in April of this year); does that jive with what we are seeing?

Lisa Reisman: I think the anticipated revenue growth, capacity utilization rate and anticipated lift in capex expectations tells us that the health of the US manufacturing community is largely good.

We spoke with Brad and Tony, who compiled the forecast results just after the release and, indeed, they reiterated the positive findings. When I asked about capacity utilization, Tony indicated 85% as an optimal operating rate, but the trend is moving in a nice direction. Obviously, we here in Metals Land see a very different picture for mills, producers and service centers, in terms of the negative impact of lower commodity prices, than we do for manufacturers — for them, it’s been great.

TB: I know ISM asked a couple of “special questions” in the survey: one on the impact of low oil prices on company profits and another on the impact of a strong dollar on those profits. Did either of these responses surprise you?

LR: At first I thought, of course purchasing managers and supply managers would like cheaper oil and a more expensive dollar: it means imports and purchased products are cheaper, driving organizational cost savings. But the opposite is true from a sales perspective, particularly if a company relies upon exports. Tony and Brad assured me that the question required the respondent to answer from a “net-net” perspective, meaning imports plus exports for that company. To me, that makes the data even more compelling — 80% of respondents effectively said that lower oil prices were positive to company profits and 60% of respondents answered that the higher dollar was net-net positive to company profits. Tony reminded me “we import more than we export.”

TB: Any other “a-HA!”s or results that surprised you?

LR: I was surprised by the breadth of the manufacturing sub-industries anticipating revenue growth in 2016. Not only did they include the metal manufacturing sub-industries such as fabricated metal products and electrical equipment, but also primary metals.

Sometimes, it’s hard to reconcile within your own mind how bearish the existing commodity markets are, with positive data. MetalMiner readers demonstrate the dichotomy between commodity producers and service centers and their customers. It also tells me that we are firmly in a buyer’s market. And manufacturers ought to be reaping the benefits of a bear market.

Source:Metalminer