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ISM Forecasts Manufacturing to Contract for Rest of 2020

Bill Koenig
By Bill Koenig Senior Editor, SME Media

Manufacturing will contract for the rest of the year because of the novel coronavirus (COVID-19), the Institute for Supply Management said today in a semi-annual economic forecast.

Revenue for the year for manufacturing is expected to decline by an average of 10.3 percent, the Tempe, Ariz.-based group said. Employment is forecast to fall by an average of 5.3 percent while capital investment is projected to contract by 19.1 percent, ISM said.

“Recovery will likely not occur until near the end of the year,” Timothy R. Fiore, chair of ISM Manufacturing Business Survey Committee, said in a statement.

The forecast is based on a survey of purchasing and supply executives in 18 industries. It is the same group the institute surveys monthly in compiling its manufacturing index, known as the PMI. That index is viewed as a barometer where the manufacturing economy is heading.

In December, ISM had forecast that manufacturing revenue would expand by an average of 4.8 percent and that manufacturing would experience steady economic growth in 2020. But the coronavirus pandemic upended the economy.

COVID-19 caused states to issue stay-at-home orders to try to slow the spread of the virus. There have been 1.4 million confirmed COVID-19 cases in the United States and almost 86,000 deaths as of early today, according to Johns Hopkins University.

There have been plant shutdowns in industries such as auto and aerospace. Manufacturers are restarting operations, including automakers such as General Motors Co., Ford Motor Co. and FCA US LLC.

ISM said only two sectors, apparel and food, beverage and tobacco expect revenue to rise this year. Representatives of 15 industries said revenue will decline. The latter group includes transportation equipment, miscellaneous manufacturing, primary metals, machinery and fabricated metal products.

Respondents reported their companies are operating at an average of 75.9 percent of capacity, a decline of 7.8 percentage points from December. Production capacity is forecast to decline by 3.6 percent this year.

The group’s manufacturing index in April fell at the fastest rate in 11 years, plunging to 41.5 percent from 49.1 percent in March. A PMI below 50 percent indicates economic contraction.

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