Procurement, are you forecasting savings? Recent data indicates that the U.S. industrial sector is currently operating below its long-term average capacity, suggesting that there is room for increased production and savings still to be had. When will the tides turn?
Capacity Utilization
As of November 2024, capacity utilization in the industrial sector decreased to 76.8%, which is 2.9 percentage points below its long-run average of 79.7%. This decline suggests that industries are operating with spare capacity, indicating that there is room to increase production without encountering significant constraints. Usually, procurement sees tightness when capacity utilization increases over 80%.
ISM Purchasing Managers' Index (PMI)
In November 2024, the Institute for Supply Management (ISM) reported a manufacturing PMI of 48.4, up from 46.5 in October. Although this increase indicates a slower rate of contraction, it is one data point and the PMI remains below the threshold of 50, signaling that the manufacturing sector is still contracting. Only one month in the last 12 has shown growth.
Outlook
Despite the current underutilization, there is optimism for growth in the industrial sector. Manufacturers anticipate a 4.2% increase in overall revenues for 2025, along with a 5.2% rise in capital expenditures and a 0.8 percentage point increase in employment levels. This positive outlook suggests that while the sector currently has spare capacity, anticipated demand growth may lead to higher utilization rates in the future.
Is this purely optimism, or do the numbers support growth and create a more difficult environment for procurement leaders to capture savings? You can learn about the top economic trends that will impact procurement at K2 Sourcing’s live event, economic trends impacting procurement in 2025.
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