By Max Sato
(MaceNews) – The U.S. economy is expected to continue improving in 2024 on expectations that it will avoid recession while inflation and borrowing costs will ease, according to the twice-annual survey by the Institute for Supply Management released Friday.
“Manufacturing’s purchasing and supply executives expect to see overall growth in 2024,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee said in a statement. “They are optimistic about overall business prospects for the first half of 2024 and more excited about faster growth in the second half.”
Fiore told reporters that expected rate cuts by the Federal Reserve next year “should have a huge impact on growth” as easing of the tight monetary policy would help alleviate one of the top concerns: high borrowing costs. Fiore called remarks by Fed Chair Jerome Powell this week a “Christmas gift” as they suggested that the U.S. central bank appears to be done with rate hikes and the economy may be able to avoid recession.
Services supply executives “are guarded about the first half of 2024, but expect robust growth in the second half, with a projected increase in capital reinvestment,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement. “Overall, things have been consistent and stable for the services sector,” he told reporters.
Nieves noted that the service sector’s projection of a 0.8% increase in employment is “slightly concerning” after a 0.3% rise since May and a 1.9% gain for all of 2023. He has said employment conditions for the sector remain a mixed bag as some firms are still struggling to fill vacancies.
The panel of purchasing and supply executives in the manufacturing expects a 5.6% net increase on average in overall revenues for 2024, compared to a 0.9% increase reported for 2023 and a 1.7% increase projected in the May survey for 2023.
Services survey respondents forecast that business revenues for 2024 will improve by an average of 6.9%, up from the 4.2% increase reported for 2023 and the 2.7% rise projected in May for 2023. It is stronger than the 3.1% growth predicted a year ago for 2023.
Manufacturers expect capital expenditures to jump 11.9% in 2024, compared to the 0.4% rise forecast in May for 2023. By contrast, services providers expect a modest increase of 2.9% in capex in 2024, less than the 4.2% increase reported for 2023 (a 4.0% was projected in May for this year).
Companies in the manufacturing sector are currently operating at 83% of normal capacity, up from 82% in the May survey but down from 88.4% reported in December 2022. Services firms are operating at 86.5% of normal capacity, down from 91% reported in May and also below the 89.9% rate seen in December 2022.
Respondents in the manufacturing sector predict a net average increase in prices paid of 3.3% between December 2023 and December 2024 while services supply management executives expect their prices to increase an average of 3.4% in 2024.
The ISM’s latest monthly survey showed that U.S. manufacturing activity was in contraction territory for the 13th straight month in November, with its key index unchanged at 46.7, as demand remains sluggish, prompting firms to lower production and reduce headcounts. Some firms used more layoffs than hiring freezes to cope with slow demand as the past rate hikes by the Federal Reserve aimed at bringing inflation down are weighing on the overall economy.
The ISM’s other monthly report also showed that business activity in the services sector was in positive territory for the 11th straight month in November and the index was slightly better than expected at 52.7 vs. 51.8 in October, regaining some momentum at the start of the holiday season and thanks to slight employment growth.