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Supply Execs Braced for 8.1% Increase in Raw Materials Prices. What They Paid Was Far Higher.

The nation’s purchasing and supply management executives expect America’s economy will continue strengthening in 2022, according to the “December 2021 Semiannual Economic Forecast” from the Institute for Supply Management (ISM).

This expansion will continue a growth trend that began in June 2020, as indicated in the monthly ISM “Report on Business.” Revenues are expected to increase in 15 of 18 manufacturing industries and 17 of 18 services-sector industries tracked by ISM.

“Manufacturing’s purchasing and supply executives expect to see strong growth in 2022,” Timothy R. Fiore, chair of the ISM Manufacturing Business Survey Committee, said. “They are optimistic about overall business prospects for the first half of 2022, with business continuing to expand through the second half, though at slightly lower rates. Respondents expect raw materials pricing pressure to increase in 2022, as well as improved profit margins…Wages and employment will continue high rates of growth as hiring slows. Manufacturers also predict growth in both exports and imports in 2022.”

Manufacturing purchasing and supply executives said their companies are currently operating at 88.7 percent of normal capacity. This is a 0.4 percent increase compared to May. The 13 industries operating at or above the average rate of 88.7 percent included furniture and related products; apparel, leather and allied products, and textile mills.

Services supply executives reported their organizations were operating at 89.4 percent of normal capacity, the same number reported in May. The 10 industries operating at or above the average capacity level of 89.4 percent included the retail trade, which could be the result of the peak-season hiring spree.

Production capacity in manufacturing increased 3.5 percent in 2021, as 38 percent of purchasing and supply executives reported an average capacity increase of 14.4 percent, 13 percent reported an average decrease of 14.9 percent and 49 percent reported no change. This compares to a May predicted increase in production capacity of 6.6 percent for 2021.

Expectations for 2022 are for an increase of 6.8 percent. The 15 industries that expect an increase in production capacity in 2022 were led by apparel, leather and allied products, and included furniture and related products.

The capacity to produce products or provide services in the services sector increased 2.3 percent during 2021, the same as what was predicted in May. For 2022, 34 percent of services supply managers expect increases averaging 13.3 percent, 9 percent of respondents expect decreases averaging 13.7 percent and 57 percent expect no change in capacity. The 15 industries expecting increases in capacity in 2022 included wholesale and retail trade, and transportation and warehousing.

Purchasing and supply executives reported 2021 capital expenditures increased 12.1 percent on average when compared to 2020 levels. Expenditures for 2021 beat survey respondents’ previous expectations, as they predicted an increase of 8.7 percent for 2021 in May.

The 42 percent of purchasers who reported increased capital expenditures in 2021 indicated an average increase of 37.8 percent, 12 percent who said their capital spending was reduced reported an average decrease of 29.3 percent and 46 percent of respondents said their levels of spend were unchanged in 2021. The 15 industries showing increases in capital expenditures for 2021 included transportation equipment; apparel, leather and allied products; and furniture and related products.

Services supply management executives reported their level of capital expenditures in 2021 increased 15.2 percent compared to 2020. This was compared to a 4 percent decrease reported for 2020 and tops the 5.7 percent increase predicted by respondents in May. The 15 industries experiencing increases in capital expenditures in 2021 included retail and wholesale trade, and transportation and warehousing.

Purchasing and supply executives expect capital expenditures to increase 7.7 percent in 2022. The 40 percent of respondents who predict increased capital expenditures in 2022 indicate an average increase of 27.1 percent, while the 11 percent who said their capital spending would be reduced predict an average decrease of 31.2 percent and the remaining 49 percent said they expect to spend the same in 2022 as in 2021. The four industries predicting increases in capital expenditures at or above the average increase of 7.7 percent for 2022 included apparel, leather and allied products.

Services purchasing and supply executives are expecting an increase of 10.3 percent in capital expenditures in 2022, less than the 15.2 percent increase reported for 2021. The 13 industries expecting increases in capital expenditures in 2022 included retail and wholesale trade.

After a forecast in May of an 8.1 percent increase in prices paid for raw materials in 2021, survey respondents reported price increases averaging 14.5 percent for the year. The 89 percent who say their prices are higher now than at the end of 2020 report an average increase of 16.5 percent, while the 1 percent who report lower prices averaged a 4-percent decrease. The remaining 10 percent indicate no change in 2021. The eight industries experiencing price increases above the 14.5 percent average this year were led by apparel, leather and allied products and included textile mills.

In 2021, services supply executives reported prices paid increased by 10.4 percent. The 18 industries reporting prices increases for 2021 included retail and wholesale trade, and transportation and warehousing.

Eighty-one percent of purchasing and supply executives expect the prices they pay to increase in early 2022 by an average of 10.6 percent. At the same time, 4 percent anticipate decreases averaging 12.2 percent. Including the 15 percent who expect no change in prices in the first five months of 2022, purchasers expect a net average overall price increase of 8.2 percent. The eight industries predicting a higher than 8.2 percent average increase in prices paid in the first part of 2022 were topped by apparel, leather and allied products and textile mills.

Services survey respondents predict their purchases in the first five months of 2022 will cost an average of 8.9 percent more than at the end of 2021. The nine industries predicting price increases of at least 8.9 percent on average in the first part of 2022 included retail and wholesale trade and transportation and warehousing.

Respondents predict a net average increase in prices paid of 8.1 percent between December 2021 and December 2022. The nine industries expecting price increases above the predicted average of 8.1 percent by the end of 2022 were led by apparel, leather and allied products, and included textile mills and furniture and related products.

For all of 2022, services supply management executives expect their prices to increase an average of 9.2 percent. The eight industries forecasting greater than the average included retail trade.

Purchasing and supply executives expect higher overall labor and benefit costs for 2022, with 73 percent of respondents expecting labor and benefit costs to grow by an average of 6.7 percent for all of 2022. The 10 industries expecting to pay an increase of 4.7 percent or greater were led by furniture and related products; and included apparel, leather and allied products.

Services purchasing and supply executives expect a 6.1 percent increase in labor and benefit costs in 2022, with 72 percent projecting such costs to increase by an average of 8.9 percent. The eight industries expecting to pay an increase of 6.1 percent or higher included retail and wholesale trade.

ISM’s Manufacturing Business Survey Committee members report that sector employment increased 3.3 percent in 2021 and forecast that employment will increase 1 percent on average, for 2022. The 14 industries predicting increases in employment in 2022 were topped by apparel, leather and allied products, and included furniture and related products.

ISM’s Services Business Survey Committee members report that sector employment has increased 0.1 percent since May 2021. They forecast that employment will increase 1 percent by the end of 2022. The 17 industries anticipating increases in employment in 2022 included retail and wholesale trade, and transportation and warehousing.

Survey responses indicate executives expect increases in new export orders for the first half of 2022. Of the 76 percent of respondents who reported export sentiment, 49 percent predict an increase over the next six months. The 11 industries expecting growth in exports during the first half of 2022 included furniture and related products.

For the first half of 2022, services respondents who report that their organizations engage in exporting are less optimistic concerning their export business. Of the 20 percent of services business survey respondents who report that they export, 20 percent predict an increase over the next six months. Of the industries that report they export, the seven seeing growth in export business in the first half included transportation and warehousing, and wholesale trade.

Respondents expect increases in imports in the first half of 2022. Of the 92 percent of purchasers who say they import goods, 41 percent predict an increase in their imports over the next six months, while 12 percent predict a decrease in imports of materials). The 12 industries expecting growth in imports included furniture and related products, and textile mills.

Services executives have higher expectations for the use of imports for the first half of 2022 than they did in December 2020 for the first half of 2021. The eight industries expecting growth in imports included retail and wholesale trade.

Summarizing revenues for 2021, 62 percent of respondents said revenue was better than 2020. Overall, revenues increased an average of 14.1 percent. The 15 industries reporting increases in revenues in 2021 included apparel, leather and allied products; furniture and related products, and textile mills.

Services supply management executives report that business revenues for 2021 increased compared to 2020 by 4.8 percent. This is greater than the 5.4 percent decrease predicted in May 2021 for all of 2021. The 16 industries reporting increases in revenues in 2021 included wholesale and retail trade, and transportation and warehousing.

Manufacturing survey respondents forecast that business revenues for 2022 will be stronger than in 2021. The 65 percent of respondents forecasting better organizational business revenues in 2022 estimate an average increase of 11.6 percent. This contrasts with an average decrease of 10.5 percent forecast by the 11 percent who predict lower business revenues in 2022. Fifteen of the 18 manufacturing industries expecting revenue improvement in 2022, led by apparel, leather and allied products, and including furniture and related products.

Services survey respondents forecast that business revenues for 2022 will improve by an average of 4.3 percent, below the 4.8 percent decrease reported for 2021, and more than the 1.6 percent increase predicted one for 2021 revenues. The 17 industries expecting increases in revenues in 2022 included wholesale and retail trade, and transportation and warehousing.

Survey respondents report that profit margins decreased on average during the second and third quarters of 2021, as 22 percent experienced an increase in profit margins, 42 percent had lower margins, and 36 percent reported no change. Expectations are higher between now and May 2022, as 34 percent of respondents forecast better profit margins, 23 percent predict lower profit margins and 43 percent predict no change. The nine industries expecting an increase in profit margins through May included furniture and related products.

Among services supply management executives, 24 percent indicated their organizations experienced an increase in profit margins during the second and third quarters of 2021, 30 percent found smaller profit margins and 46 percent had no change in margins during the same period. From now through May, 26 percent of supply managers expect improved profit margins, 23 percent expect lower profit margins and 51 percent anticipate no change. The seven industries expecting an increase in profit margins through May 2022 included transportation and warehousing, and wholesale trade.

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