Business leaders navigating today's uncertain economic landscape now have a compass to guide their strategic decisions. The Institute for Supply Management's (ISM) latest "Supply Chain Planning Forecast" report provides authoritative insights into the 2026 outlook for both manufacturing and service sectors, drawing on perspectives from U.S. procurement and supply chain executives.
Manufacturing Sector: Poised for Recovery in 2026
After weathering challenges in 2023 and 2024, the manufacturing sector is projected to experience significant growth in 2026, according to ISM's comprehensive analysis.
Key Projections:
- Revenue Growth: Manufacturing revenue is expected to increase by 2.5% in 2025 (up from May's 1.3% projection), accelerating to 4.4% in 2026. Fifty-six percent of respondents expressed confidence in revenue growth for 2026.
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Industry-Wide Expansion:
Sixteen of the eighteen tracked manufacturing sectors are forecast to achieve revenue growth, including:
- Food, beverage, and tobacco products
- Computer and electronic products
- Chemical products
- Transportation equipment
- Primary metals and fabricated metal products
- Capital Investment: Manufacturing capital expenditures are projected to rise 3.5% in 2025 (significantly higher than May's 1.3% forecast) with a further 3% increase in 2026. Thirty-one percent of respondents plan average increases of 31.2% in capital spending.
- Pricing Trends: Input costs are expected to rise 5.4% in 2025 and 4.4% in 2026, maintaining pressure on production costs.
- Employment and Capacity: Manufacturing employment is projected to grow modestly (0.4% in 2026), while capacity expansion is anticipated to reach 5.2% in 2026. Current operating rates stand at 82.4% of total capacity.
"Manufacturing supply executives anticipate overall growth in 2026," noted Susan Spencer, Chair of the ISM Manufacturing Business Survey Committee. "They remain optimistic about raw material pricing pressures and expect stronger margins in the first half of 2025 compared to the second half."
Service Sector: Sustained Expansion Continues
The service sector demonstrates remarkable resilience, with ISM forecasting steady growth through 2026 despite broader economic headwinds.
Key Indicators:
- Revenue Growth: Service sector revenue is projected to increase 4.6% in 2026, building on 2025's expected 4.2% growth. Fifty-four percent of executives anticipate revenue expansion.
- Investment Patterns: Capital expenditures are forecast to grow 3.9% in 2025 (up from May's 3.3% projection) and 2.5% in 2026. Thirty-seven percent of firms plan spending increases averaging 15.4%.
- Operational Capacity: Service providers currently operate at 90.2% of normal capacity, with capacity expected to grow 2.1% in 2026.
- Employment Growth: The sector is projected to add jobs at a 2.5% rate in 2026, reflecting continued demand for services.
- Cost Management: Input price increases are projected at 3.6% for 2025 and 4.2% for 2026, presenting manageable cost pressures.
Steve Miller, Chair of the ISM Services Business Survey Committee, emphasized: "Service sector executives report strong operational capacity and anticipate employment growth alongside increased capital investment through 2026."
Strategic Implications
ISM's forecast paints an encouraging picture for both sectors, with manufacturing positioned for recovery and services maintaining steady expansion. Business leaders should consider:
- Strategic capital investments to prepare for anticipated demand increases
- Supply chain optimizations to mitigate persistent input cost pressures
- Talent acquisition strategies aligned with projected employment growth
- Capacity planning responsive to sector-specific expansion forecasts