US industry expects rosy 2019 — ISM

Fewer companies plan to raise prices

WASHINGTON: US companies expect their current run of good fortune to extend into 2019, with higher profit margins, more investment and continued hiring, according to a survey released on Monday.

But business in the latter part of the year will not be as strong as 2018, as trade suffers from tariffs and the US dollar strengthens further, according to the year-end report from the Institute for Supply Management.

ISM’s semi-annual survey also showed tariffs will eat significantly into the manufacturing sector, even though some companies may be adapting to life under President Donald Trump’s trade war since it began over the summer.

“In the dominant services sector, firms remain optimistic, only less so than last year,” said Anthony Nieves, chairman of the ISM survey for non-manufacturing.

“Definitely, there is going to be a little bit of a pull-off,” he told reporters.

The survey results contrasted with a Business Roundtable survey released on Friday, which showed dimming sentiment among US corporate leaders — another sign of mounting fears the economy has peaked.

The economic outlook rating among US chief executive officers declined to 104.4 in the fourth quarter from 109.3 in the third quarter, according to the survey.

According to ISM, fewer companies expect to raise prices but many manufacturers are thinking of re-arranging their supply chains and factory locations due to the tit-for-tat exchange of tariffs among the world’s major economies.

In the manufacturing sector, the ISM survey found firms expect to raise capital investments by 6% next year, slower than the 13.4% increase in 2018.

Significantly, few survey respondents cited the Republican-driven 2017 tax cuts as a reason to increase capital spending.

And, of manufacturers who plan to decrease investment, about one in five cited uncertainty from the trade war.

And as steady hiring creates a dwindling pool of available workers, the share of companies that reported difficulty filling open positions grew over the course of 2018.

Nearly 80% of manufacturers and 73% of services firms say they are struggling to find workers, compared to about 65% a year ago.

As a result, nearly 60% of respondents reported increasing wages to attract new recruits, up substantially from a year ago.

Meanwhile, as the trade war takes its toll, the survey found about two-thirds of manufacturers are considering finding alternative sources for inputs and reviewing moving some factories due to US tariffs imposed this year on steel and aluminium, as well as $250 billion in Chinese goods.

Timothy Fiore, chair of the ISM manufacturing survey, said the second half of 2019 was expected to be weaker than the first part.

“One of the things that jumped out at me was the significant decline in global trade,” he said.

Manufacturers’ expectations f or exports dropped significantly over the year and they also see the US dollar continuing to strengthen.

“Those to me are real headwinds,” he said. “I just don’t see the export market right now as being an outlet for manufacturing capacity.”

There was a steep drop since May in the share of companies that expect to raise prices due to the tariffs.

At year end, 52% of manufacturers and 24% of services firms said they planned to raise prices because of tariffs, a decline from seven months ago, when the share was 74% and 50%, respectively.