ISM Economic Report Points to Growth in Services Sector During 2016

services sector Viacheslav Lakobchuk/Adobe Stock

Purchasing and supply management executives overall expect economic growth to continue in 2016, according the the Institute for Supply Management Semiannual Economic Forecast released Tuesday.

A total of 87% supply management leaders in the non-manufacturing sector are optimistic for the year ahead, predicting 2016 will be better or the same as 2015. Specifically, 47% expect 2016 to fare better for them than 2015 and 40% predict 2016 will be about the same as this year.

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However, the ISM report also showed more supply managers in the sector are less optimistic for 2016 than they were for 2015. Thirteen percent had a pessimistic 12-month outlook, saying 2016 will likely be worse for them than 2015. This compares with the 11% of respondents who said last year they believed 2015 would be worse.

Anthony Nieves, chair of the ISM NMI Survey Committee, said respondents to the survey are generally confident they are moving in the right direction with incremental, steady growth. However, that growth in the year ahead may not be as strong as previously thought. But it is important to point out the sector is still growing, just at a slightly slower rate, according to Nieves.

Capital Expenditures Expected to Rise in 2016

One highlight from the ISM report that Nieves said was worth noting was the forecast for capital expenditures in 2016. Purchasing and supply executives in the sector are expecting capital expenditures to increase 7.5%, the report said. This is higher than the 2.5% rise in capital expenditures being reported in 2015. This predicted rise in capital expenditures for 2016 shows a level of confidence companies in the sector have, Nieves said.

“That bodes well to see commitment to capital reinvestment,” he said.

Operating capacities were another bright spot of the report. The non-manufacturing industry is currently operating at 87.9%, which is an optimal level, Nieves said. Anything over 80% is really good for the sector, he added. Non-manufacturing purchasing and supply managers also expect capacity to increase 2.8% in 2016.

Additional Highlights

Other highlights of the report included an expected 3.2% net increase in overall revenues next year among the non-manufacturing sector. This is larger than the 2.7% revenue increased predicted last year for 2015. Among the 15 industries in the sector expecting higher revenues next year include transportation and warehousing, retail trade and wholesale trade.

Labor and benefit costs are also expected to rise next year by 2.3% overall, the report showed. A total of 62% of survey participants said they expect costs to rise 4.1% and 34% expect these costs to remain stable next year. Employment in the non-manufacturing sector is forecasted to grow 1.7% in 2016 as well.

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