The U.S. manufacturing and services sectors will continue to grow this year as revenues rise, but prices for materials are seen climbing further, according to an industry forecast released on Tuesday.
The Institute for Supply Management in its semi-annual forecast found purchasing and supply executives expect manufacturing revenue will rise 7.5 percent this year. That is modestly slower than the 7.9 percent rise seen last year.
Revenue in the non-manufacturing sector, which comprises mostly service sector businesses, is expected to be up 2.1 percent, topping 2010's gain of 0.2 percent.
Much of manufacturing has emerged from the economic downturn and is experiencing significant growth, Norbert Ore, chair of the ISM Manufacturing Business Survey Committee, said in a statement.
Executives said they now expect prices for materials to be much higher than previously thought, rising 7.4 percent in the manufacturing sector and 4.7 percent in non-manufacturing.
In the December survey, prices had been predicted to rise 4 percent for manufacturers and 3.1 percent for non-manufacturers.
Firms said they had already seen a sharp rise in prices in the first four months of the year. Manufacturers reported prices had increased 6.1 percent as of April, while in the service sector prices were up 4.1 percent.
The recent surge in energy and commodity prices has crimped companies wary of passing on higher prices to frugal shoppers, but most economists expect the impact of price increases will be temporary. Oil prices have backed off in recent weeks, falling from almost $115 a barrel in early May to about $96 on Tuesday.
Manufacturing sector capital investment is forecast to rise by 17.9 percent in the year, while non-manufacturing capital investment is expected to rise 1.4 percent.
Employment was predicted to provide support, rising 2.9 percent among manufacturers and 0.9 percent among the service sector.
The positive forecast for revenue growth and improved employment will drive the continuation of the recovery in the sector, said Ore.
(Reporting by Leah Schnurr; Editing by Leslie Adler)