Manufacturing growth will pick up in 2026 as price increases for raw materials slow down from 2025, according to a semiannual survey by the Institute for Supply Management released today.
The supply chain and procurement executives surveyed by ISM project 4.4% growth in manufacturing revenue next year, compared to 2.5% in 2025. They predicted growth in 16 of 18 industrial sectors, with the two exceptions being plastics and rubber products and electrical equipment, appliances and components. 56% projected manufacturing revenue to be higher next year than in 2025.
The ISM Supply Chain Planning Forecast suggests raw materials prices will increase 5.4% during the first five months of the year, but only 4.4% for all of 2026, an improvement over the 5.4% increase in raw materials prices in 2025.
“Manufacturing’s purchasing and supply executives expect to see overall growth in 2026,” says Susan Spence, MBA, chair of the ISM Manufacturing Business Survey Committee. “They are optimistic about overall business prospects for the first half of 2026 and more excited about faster growth in the second half. Respondents continue to expect raw materials pricing pressure in 2026 and see first-half 2026 profit margins improving over the second half of 2025.”
The outlook for the services sector was slightly less bullish. 54% of executives in that sector projected higher growth, with the overall growth projection coming in at 4.6% in 2026, compared to 4.2% in 2025. They expect higher sales in 16 of 18 sectors, with the two exceptions being construction and educational services.
Factories Use More of Their Capacity
The manufacturing survey found that companies are operating at 82.4% of normal capacity, an increase of 3.2 percentage points from the May 2025 survey by little changed from 82.3% in December 2024.
A separate study the Federal Reserve Bank of St. Louis found that U.S. factories were operating at 75.5% of capacity in September, below the 1972-2024 average of 78.2%, suggesting there remains unused capacity.
Services executives surveyed by ISM say their firms are operating at 90.2% of capacity compared to 86.5% in May and 87.4% in December 2024.
Manufacturers expect to hire modestly, with employment projected to grow only by 0.4 percentage point in 2026 relative to December 2025 levels. Labor and benefit costs are expected to increase an average of 2.5 percent.
Executives in service industries project employment growth of 2.5% in 2026.
Manufacturing executives surveyed project an average increase of 3% in capital expenditures in 2026 over the current year, with 32% projecting their firms will increase investments by an average of 26.1%. Of the 22% who project lower capital spending, they expect an average decrease of 23.2%.
Eight industries are projected to increase capital spending. They are, in order of highest to lowest growth: Primary Metals; Furniture & Related Products; Petroleum & Coal Products; Apparel, Leather & Allied Products; Chemical Products; Fabricated Metal Products; Transportation Equipment; and Machinery.
