Manufacturing growth will come from market demand and tech


The manufacturing industry is growing — but not every sector.


The industry is expected to grow by 1.5% annually over the next five years, but the outlook for individual sectors ranges from 3.1% (for firms with growth rates in the top 10%) to -1.5% (for firms with growth rates in the bottom 10%).



Out of the 19 sectors in manufacturing, the five fastest-growing sectors made up 40% of manufacturing output in 2022 — and that share is expected to expand to 44% by 2027.


Two of the five fastest-growing sectors produce transportation equipment. “Motorcycles, ships, aerospace products, and rail stock” is the fastest-growing sector (3.9% forecast annual growth), and “motor vehicles and parts” is the fourth fastest-growing (2.7% forecast annual growth). The remaining three sectors are machinery, computers and electronics, and chemicals, which are expected to have 3.6%, 3.0% and 1.7% annual growth respectively. 



Pent-up market demand is one of the key reasons that these sectors are likely to grow.


Supply chain disruption from the COVID-19 pandemic and the Russian invasion of Ukraine have left the automobile and machinery sectors with relatively high levels of unfilled orders. For machinery and computer and electronic products, these unfilled orders are worth nearly 10% of each respective sector’s annual output. In the future, many firms will try to limit sharp rises in unfilled orders by rethinking their approach to supply chain management. 



IT spending in each sector is another point to consider. The three sectors with the highest expected growth (computer and electronic products, machinery and other transportation equipment) are historically among the highest spenders on IT as a share of total procurement, spending 14.7%, 6.1%, and 4.4% of their total inputs budgets on "enterprise IT products”, respectively. 



This is significantly higher than the overall manufacturing sector, which spends 3.4% of its budget on IT products. These three sectors’ IT spending is predominantly directed toward devices and IT services, with software, internet services, and communication services making up a smaller proportion of overall tech spend.


As manufacturing leaders look for ways to lead through the current era of change, they need to find the best investments. The industry’s top performers appear to be investing in IT to help build efficiency and agility, so that they can catch up on unfilled orders and stay ahead of the next disruption.


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