ISM semi-annual report predicts full expansion of U.S. manufacturing and services in 2026

A New Cycle of Global Manufacturing Expansion: The US Industrial Landscape Revealed by the ISM Semiannual Report

In June 2026, the latest Semiannual Economic Forecast released by the Institute for Supply Management (ISM) painted a clear picture of synchronized expansion in both manufacturing and services. Based on feedback from US-based purchasing and supply chain executives, the report not only confirmed the optimistic expectations from late 2025 but also raised several key indicators to higher levels. For global supply chain researchers, the data reflects not only the resilience of the US economy but also the deeper logic of post-pandemic supply chain restructuring, accelerated industrial automation, and regional capacity reallocation.

Manufacturing: Revenue Growth Approaching 10%, Capacity Utilization Nearing Bottlenecks

The report shows that US manufacturing revenue in 2026 is expected to grow 8.4% year-over-year, a significant upward revision from the 4.4% forecast in December 2025, and 2.5 percentage points higher than the full-year growth rate in 2025. Among respondents, 82% expect revenue to increase by an average of 12.7%, covering 14 of 18 manufacturing sub-sectors, including nonmetallic mineral products, paper products, primary metals, and computer and electronic products. This reflects that, after the destocking and demand adjustment period of 2023–2024, US manufacturing has entered a substantial phase of restocking and capacity expansion.

On capital expenditures, the 2026 plan calls for a 4.9% increase, higher than the previously forecast 3.0%. 60% of companies plan to increase capital spending, with an average increase of 23.7%, focused on capacity expansion and automation upgrades. This trend aligns closely with the investment stimulus effects of recent US manufacturing reshoring policies (such as the CHIPS and Science Act and the Inflation Reduction Act). Factory construction spending reached record highs in 2025, and the growth in capital spending in 2026 further indicates that companies are converting policy dividends into actual production capacity.

Notably, manufacturing capacity utilization has risen to 89.6% of normal capacity, far exceeding the 82.4% forecast in December 2025. Utilization near 90% typically signals impending bottlenecks, forcing companies to choose between expanding capacity or outsourcing. The expected expansion in production capacity (+9.7%) is a direct response to this pressure. Additionally, the prices paid index rose 11.9% in six months, far exceeding the previous full-year expectation of 4.4%, indicating that cost-side inflationary pressures continue to accumulate. This may prompt companies to accelerate supply chain nearshoring and automation to reduce reliance on imported intermediate goods.

Services: Continuing to Lead the Economy, but Weak Labor Growth

As the mainstay of the US economy, the services sector is expected to see revenue growth of 8.6% in 2026, also significantly higher than the 4.6% forecast in December. 81% of respondents expect an average increase of 12.9%. Revenue increases are expected across 16 services sub-sectors, covering a broad range. Capital expenditure plans call for 6.4% growth, with 70% of companies planning an average spending increase of 14.3%, primarily for digital infrastructure and logistics automation.However, service sector employment is expected to grow by only 0.9%, far below the 2.5% forecast in December. This reflects a cautious hiring strategy in the service sector against the backdrop of normalized labor shortages after the pandemic. Meanwhile, prices paid have risen by 7.7% over the past six months, with an expected annual increase of 8.9%, and inflationary pressures are eroding purchasing power. The service sector operating rate has reached 91.3%, getting closer to full capacity, and future expansion may be constrained by talent supply bottlenecks.

Global Supply Chain Perspective: How Does U.S. Expansion Reshape the Industrial Chain?

Although the ISM report's data focuses on the United States, its impact is global. The simultaneous expansion of U.S. manufacturing and services first implies that import demand will remain strong—especially for capital goods and industrial raw materials. However, the combination of capacity utilization nearing limits and rising prices will incentivize U.S. companies to accelerate automation investments to replace labor and drive supply chain shifts from far-shore to near-shore (e.g., Mexico) or onshore. The significantly increased capital expenditure in 2026 is the financial manifestation of this structural transformation.

On the other hand, the strong recovery of U.S. manufacturing may create a "siphon effect" on the global economy, attracting more overseas manufacturing investment to North America. But this also intensifies industrial competition pressures in other regions of the world (such as Europe and East Asia). Particularly in areas like semiconductors, electric vehicle batteries, and critical minerals, the localized capacity established by the U.S. through subsidies and tax incentives is reshaping the global division of labor.

A notable potential risk is that if domestic price increases in the U.S. continue to pass through, it may force the Federal Reserve to maintain higher interest rates for longer, thereby suppressing global capital flows and manufacturing financing in emerging markets. Moreover, the tight labor market—manufacturing employment growing only 1.4% and service sector only 0.9%—suggests that automation and AI penetration may be the only sustainable path to sustain expansion.

Trend Judgment: Global Manufacturing Enters a "High Investment-High Cost" Phase in 2026

Based on the information in the ISM report, global manufacturing in 2026 is entering a typical cycle of high capital investment and high operating costs. Companies are forced to balance expanding capacity and controlling costs, making automation, smart manufacturing, and supply chain regionalization inevitable choices. For industrial investors, focusing on opportunities for machinery and equipment imports arising from U.S. capacity bottlenecks, as well as software and automation solutions related to digital upgrades in the service sector, are the core directions in the current window period.

In the long run, this data confirms the substantial revival that U.S. manufacturing is undergoing—not a simple cyclical rebound, but a structural reshaping driven jointly by policy, technology, and cost structures. The global manufacturing system is shifting from "efficiency first" to "resilience first," and the U.S. is practicing this new paradigm through massive capital expenditure.

--- *Source: Institute for Supply Management (ISM) Spring 2026 Semiannual Economic Forecast*