ISM® Supply Chain Planning Forecast: Cautious Optimism ‘Abounds’

Considering the ISM^® PMI^® Reports in recent months, particularly for the manufacturing sector, one could be forgiven for preparing for the worst before perusing the ISM^® Supply Chain Planning Forecast released on Tuesday.

With (1) manufacturing in contraction for nine straight months as companies continue to be bedeviled by tariffs and (2) services in expansion but with growth slowing significantly over the last two years, sentiment for 2026 was not expected to be high.

And that was true — however, the level of optimism, albeit extremely cautious, was somewhat surprising. Survey respondents in both sectors expect revenue increases next year, and capital expenditures are projected to grow, although at slower rates than in 2025. Employment gains are expected to be flat in manufacturing and modest in services, and projected price increases could be less than feared.

“It’s encouraging to see that we have some optimism for next year, especially given the last few months of chaos and wringing of hands,” Susan Spence, MBA, Chair of the Institute for Supply Management^® Manufacturing Business Survey Committee, told a conference call of reporters on Tuesday.

Noting that tariffs and trade-policy uncertainties have dominated panelists’ comments in recent months, Spence added, “I think folks are trying to be optimistic that the chaos is actually going to be over with (a looming U.S. Supreme Court) ruling one way or the other, so they will know what their companies are going to do.”

The Forecast is based on responses from the ISM Manufacturing and Services Business Survey panelists who help compile the monthly ISM^® PMI^® Reports. Formerly known as the Semiannual Economic Forecast, it reports recent sector performance, as well as expectations for next year, from the purchasing and supply executives on the front lines of the economy.

Another reason the results were a surprise — and perhaps a caveat — are because they reversed a sharp turn in sentiment from the May edition of the Forecast, when anxiety doused positive expectations before the start of 2025.

In manufacturing, panelists reported a 2.5-percent increase in overall revenues this year and project a 4.4-percent gain in 2026. Services respondents indicated revenues were up 4.2 percent in 2025 and expect an increase of 4.6 percent next year. In both sectors, 16 of the 18 industries project revenue improvement.

Steve Miller, CPSM, CSCP, Chair of the ISM Services Business Survey Committee, said the cautious optimism could be a sign that services businesses have learned how to navigate (1) prices in the wake of tariffs and (2) employment amid changes in immigration enforcement.

“It seems like companies are finding a way to deal with the impacts, which is a positive sign for the U.S. economy,” he said.

Capital expenditures are one of the biggest signs of business confidence, and manufacturing panelists project a 3-percent increase in 2026 after reporting a 3.5-percent gain this year. In services, those figures are 2.5 percent and 3.9 percent, respectively.

In the wake of federal data for October and November released on Tuesday that revealed a net loss of 41,000 jobs over the two months and the unemployment rate rising to 4.6 percent, the highest since September 2021, employment projections in both sectors were not overwhelming. Manufacturing panelists expect a 0.4-percent increase in 2026, while a gain of 2.5-percent increase is projected in services.

“(Respondents) are still not seeing cause for big predictions for employment increases because the order books have not improved,” Spence said. “The type of capital expenditure increases remains to be seen, but I think you can assume at this point that they’re not going to come with a side dish of higher employment.”

Operating rates — the share of a sector’s production or provision capacity that is being used — regained their loss from May, with a nice boost in services. The rate (the current figure, not a projection) is 82.4 percent, up from 79.2 percent in May and nearly equal to the 82.3 percent reported in December 2024.

In services, the rate is 90.2 percent, up from 86.5 percent in May and 87.4 percent a year ago. That solid current figure could be a double-edged sword and lead to growth leveling in the second half of 2026, Miller said: “If we do indeed see a recovery, the services sector may be constrained in its ability to support that recovery given its high utilization now.”

Among other Forecast findings:

• Prices paid by manufacturing respondents’ companies elevated 5.4 percent this year, with a 4.4-percent expected increase in 2026. In services, the figures are 3.6 percent and 4.2 percent, respectively.
• Reshoring continues to be a mixed bag: Nearly two-thirds (64 percent) of manufacturing panelists and 82 percent of those in services reported that their companies are not looking to shift sourcing/production to the U.S. from abroad or are looking for alternative trader partners overseas.
• In a special question, 32 percent of manufacturing respondents and 44 percent in services reported that their companies have created artificial intelligence (AI)-related roles across their organizations, in some departments or in pilot groups. Eleven percent and 14 percent, respectively, indicated plans to do so.
• The One Big Beautiful Bill didn’t open the capital investment floodgates, with no effect for 59 percent of manufacturing companies and 71 percent in services. In fact, 20 percent and 13 percent, respectively, have or plan to reduce capital expenditures.

“Optimism abounds right now, but that was the case last year before the dip in May,” Spence said. “We’re going to again be looking to the (Trump administration’s) policy decisions, and hopefully the (results) of those decisions will support the optimism that people seem to be feeling right now. It’s not huge optimism; it’s slight optimism. But we’ll take it.”

(Photo credit: Getty Images/Pete Karici)