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Heady With Optimism, Manufacturers Plan To Spend Money To Expand

U.S. businesses, especially manufacturers, who are experiencing a surge of optimism, are poised to continue increasing their capital spending throughout the rest of this year. 

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Manufacturers expect their capital spending to spike an average 10.1% this year, according to the Institute for Supply Management’s latest semi-annual forecast, which is based on a survey of purchasing and supply executives.

That is a lot higher than the last time the ISM did a survey, which was at the end of 2017. At that time, purchasing and supply executives expected a bump in capital expenditures of only 2.7%.

The survey showed other kinds of optimism among manufacturers. Sixty-two percent of respondents predict their revenues, on average, will be 11.6% greater in 2018 compared to 2017, while only 5% expect a decline (averaging 11.9%) and 33% of the respondents foresee no change in revenue.

"With 15 of the 18 manufacturing sector industries predicting revenue growth in 2018, U.S. manufacturing continues to move in a positive direction," Manufacturing Business Survey Committee Chair Timothy Fiore said in a statement.

"However, finding qualified labor and being able to pass on raw material price increases will ultimately define manufacturing revenues and profitability.”

The National Association of Manufacturers also reported optimism among manufacturers in its Manufacturers’ Outlook Survey for Q1, which the organization released in April. 

The NAM reported all-time highs for projected employment growth, capital spending and inventories; projected wage growth registering its fastest pace in 17 years; and projected sales growth registering its second-highest reading in the 20-year history of the survey.

Why are manufacturers so optimistic? 

“Empowered by tax reform and regulatory relief, manufacturers are now investing in our people through new jobs, higher wages, bonuses and growing our operations in the United States,” NAM President and CEO Jay Timmons said in a statement.

The ISM report, on the other hand, said only a small share of manufacturers cited tax legislation as the driver for capital spending plans, though more than before the law was enacted. For most respondents, the overall healthy economic climate spurred their decisions.