U.S. economic improvement will continue in 2025.
That’s the verdict from the December 2024 Institute for Supply Management (ISM) semi-annual forecast, based on a survey of purchasing and supply management executives in both manufacturing and in services. The ISM Supply Chain Planning Forecast found that 60 percent of respondents expect revenue in 2025 to increase 4.2 percent, versus the 0.8 percentage point increase reported for 2024. The next ISM forecast is slated for May 2025.
Executives from both groups are optimistic about their prospects in 2025. Thirty-eight percent of manufacturing respondents expect the first half of 2025 to be better than the last half of 2024. And among those in the services sector, 37 percent are predicting a better 2025 first half when compared with the last six months of 2024.
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Manufacturing
“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 Timothy R. Fiore, chair of the ISM Manufacturing Business Survey Committee. “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.”
The Business Survey Panel predicted that prices to be paid for raw materials will increase 3 percent during the first five months of 2025, with an overall increase of 3 percent for the year. The reported increase for raw materials in 2024 was 3 percent.
In addition, capital expenditures are expected to increase by 5.2 percent in the manufacturing sector, on top of the 5.6 percent increase in 2024. Manufacturers also said they expect employment in the sector to grow by a 0.8 percentage point in 2025 when compared with December 2024 levels. And on the rise will be labor and benefit costs, which is forecasted to grow an average of 3.3 percent. The respondents said they expect the U.S. dollar to strengthen next year against the currencies of seven major trading partners. Those seven currencies are the euro, Canadian dollar, British pound, Japanese yen, Mexican peso, Korean won and the Taiwan new dollar.
The purchasing and supply executives also said their companies operated at 82.3 percent of normal capacity, reflecting a 0.5 percentage point decrease from the 82.8 percent reported in May 2024. They also reported on average an increase of 1.7 percent in production capacity for 2024, down from the May 2024 predicted increase of 2.4 percent for the year. Earlier this year, American manufacturing saw its first growth spurt in more than a year in March, with the textile sector at the top of the list of industries that posted gains.
Expectations for 2025—which includes several industries, such as textile mills—are for an increase in production capacity of 4 percent, according to ISM. And finally, while respondents reported that profit margins fell on average during the second and third quarters of 2024, current expectations are higher between now and May 2025, with 30 percent of those surveyed—including executives at textile mills—forecasting better profit margins for the period.
Services
Services supply management executives said they expect a 3.9 percent gain in overall revenues for 2025, versus a 3.7 percent increase reported for 2024. These respondents included those from transportation and warehousing, retail trade and wholesale trade, among others. They also expect prices for materials and services to rise by 5.3 percent next year, and overall labor and benefit costs to increase 3.5 percent.
These executive respondents also reported that the capacity to product products or provide services in the services sector, which includes retail trade, rose 3.2 percent during 2024. That’s greater than the 2.6 percent predicted in the May 2024 survey. And 37 percent of respondents now expect an increase in capacity averaging 7.9 percent in 2025, although 2 percent predict a decrease averaging 6.4 percent.
In addition, the same executives indicated that 21 percent of those surveyed experienced an increase in profit margins in the second and third quarters of 2024, while 36 percent now expect improved profit margins between now and May 2025.
