Photographer: Luke Sharrett/Bloomberg

Investment, Hiring Plans Show Rising U.S. Business Optimism

A jump in U.S. investment and hiring plans for 2017 indicates manufacturers and service providers have grown more optimistic about the economy since late last year, the Institute for Supply Management’s twice-yearly forecast showed Monday.

Highlights of ISM Semiannual Survey 
  • Purchasing managers at factories anticipate capital spending will rise 5.2% vs 0.2% gain seen in prior survey conducted in Nov.
  • Purchasing managers at service providers expect capital spending will rise 5.2% vs 0.2% drop seen previously
  • Employment to increase 1.3% at factories (prior forecast 0.6%); to climb 2.2% at service firms (previous survey 1.2%)  

Key Takeaways

By margins of more than four-to-one, companies that were increasing their capital spending plans gave the reason as an improved business outlook rather than prospects for regulatory reform, the survey showed. The results are consistent with a post-election surge in confidence and support projections for a pickup in economic growth following a weak first quarter. At the same time, businesses and consumers are still awaiting evidence that President Donald Trump and Congress can quickly enact and implement legislation covering tax cuts, infrastructure investment and fewer regulations.

Official’s View

Given that most businesses pointed to the general outlook for demand as reason to feel upbeat, ISM manufacturing survey committee chairman Bradley Holcomb said it might not matter if the administration gains little traction on tax reform or deregulation by year’s end. The trajectory for industry will be positive regardless, he said on a conference call with reporters. “Part of the expectation, I’m guessing here, is that the tax reform will take a while and that it may not be at the level that was initially discussed,” Holcomb said. He added that he expects to see capital-expenditure plans pick up if things continue to go well in the economy.

Other Details

  • Revenue to rise 4.4 percent at factories and 4.1 percent at service providers, both little-changed from November projections
  • Special question showed more firms lost pricing power in past six months than gained it; about half saw no change
  • More firms were actively off-shoring than re-shoring significant volumes of business, though more than 70 percent were doing neither, according to a special question
  • Survey was conducted in late April by Tempe, Arizona-based ISM; covered about 700 firms drawing equally from manufacturers and service providers
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