In its latest Manufacturing Report on Business this morning, ISM reported the PMI at 50.7%. That is down from last month, and just barely on the “growth”
side of 50%. According to the release…
Economic activity in the manufacturing sector expanded in April for the fifth consecutive month, and the overall economy grew for the 47th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.
It is interesting that the PMI very closely aligns with the results of a non-scientific “flash poll” of ISM members at the organization’s 2013 International Supply Management Conference wrapping up today in Dallas, Texas. They were asked “Which way is the economy headed for the remainder of 2013?” and 64% responded “holding steady,” while 29% responded “turning up.” Only 7% responded “going down.” The conference attendees used a system called ThumbTalk that let them respond by sending a text message or making a choice at a mobile web site.
Shortly after the attendees answered the question live, they heard a semiannual economic forecast from ISM’s Bradley Holcomb and Anthony Nieves, who gave positive outlooks for both manufacturing and non-manufacturing sectors of the economy. (Read them here.) A third economist, Bernard Baumohl, Chief Global Economist, The Economic Outlook Group also forecast growth ahead for the U.S. economy.
Make of this what you will, but I would dare to call it “consensus.” For the moment.
Respondents to the ISM Report on Business in non-manufacturing industries had some alignment to their counterparts in manufacturing last month — as the index dipped 1.6 percentage points, but still remained positive. Here’s the headline. Find the full report on the ISM website.
March Non-Manufacturing ISM Report On Businessâ
NMI™ at 54.4%
Business Activity Index at 56.5%
New Orders Index at 54.6%
Employment Index at 53.3%
(Tempe, Arizona) – Economic activity in the non-manufacturing sector grew in March for the 39th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.
For the record, right from the ISM release. PMI™ at 51.3%, so expectations of growth are continuing, although not as strong as last month, when the index was 54.2.
- New Orders, Production and Employment Growing
- Inventories Contracting
- Supplier Deliveries Faster
(Tempe, Arizona) — Economic activity in the manufacturing sector expanded in March for the fourth consecutive month, and the overall economy grew for the 46th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®. (More on the ISM website.)
A friend of mine visited an upscale suburban mall over the weekend and found the parking lot full and the shoppers lively. The only things missing were lots of bags crammed with merchandise coming out of the stores. In other words, people were having a lot of fun looking, but appeared to be careful about their buying. Based on the latest ISM Manufacturing Report on Business and other indicators — that observation might be a good analogy for the global business climate.
For instance, the ISM ROB for September went positive again — after three months in negative territory. The manufacturing PMI went up to 51.5 — an increase of 1.9 percentage points over the last month. The Non-Manufacturing PMI jumped 1.4 percentage points to 55.1 (Here’s the link to find both reports
From our perspective — that’s a sign that the “shoppers” are out again, but just because they are looking doesn’t mean they all will be buying. There’s still far too much uncertainty for many companies to make firm plans. They are waiting for election returns and Congressional action on the “fiscal cliff” — not to mention a European recession and Chinese economic slowdown.
Consumers uncertain about the economy are saving more than spending, and companies are following a similar course — hoarding cash by meeting slowly growing demand with minimum new investments.
This period of uncertainty and incremental changes up or down may last through the end of the year — or longer. If so, it would be a good time to push through the programs that sometimes get set aside during rapid growth — visiting suppliers, mapping your supply chain deeper than the first tier or two to assess risk, reviewing sustainability or establishing better documentation of the chain of custody. All these things will put you on firmer footing regardless of which way the economy turns.
ISM released its August Report on Business – Manufacturing, and the news is not surprising considering the continuing European debt saga, Indian snafus such as the biggest power outage in history and other uncertainties. The index is just under the 50 mark — making it the second consecutive month of manufacturing decline after a run of 34 positive months. According to ISM, the overall economy is still growing, and that mixed result is reflected in comments from survey participants that ranged from “demand is strong” to “a marked slowing in business overall.” While it generally makes sense not to take great risks in the face of such uncertainties, there are also good opportunities for leverage if your company or your industry is one of those that still has positive momentum. Suppliers who see softening demand from other customers may be willing to trade margin for the certainty of your business. These are times when you can take advantage if you have been careful to build cost models for what you buy. The more you understand what drives the prices of your suppliers, the better position you’re in lower them without driving your supply base out of business.
No big surprise to anyone who has been baking in record temperatures and drought conditions anywhere in the central part of the country, but today’s US Dept. of Agriculture food price forecast projects increases in the range of 2.5 to 3.5 percent for the remainder of 2012, and uncertainty about the full effect of the drought.
If grain or livestock is a category you source, are you prepared for “drought shock?”
How about the short term dip in beef prices as farmers sell off stock rather than pay higher costs for feed?
According to the official statistics, the U.S. had a $295 billion trade deficit with China last year. That sounds pretty horrible, but here are a few related thoughts to chew on. Economist magazine estimated the total cost to Apple of creating an iPad was about $275. Since it’s assembled in China and sold by the millions here, it may account for as much as $4 billion of that trade deficit. But Economist said, “wait a minute” because the design, engineering, and marketing costs are all based in the U.S., and major components such as chips, displays and memory are made in Japan and Korea. The actual value added by the final Chinese manufacturing is closer to $10, not $275. That’s a huge difference.
Because Apple has U.S. suppliers and a U.S. distribution system, Economist estimates about half of the value of each iPad stays here, generating about $4.1 B in U.S. economic activity from an estimated 15 million units sold.
A similar analysis comes from three authors of an article in the Journal of International Commerce and Economics. They looked at the supply chain for iPods (remember those?) and estimated the product was generating just under 14,000 U.S.-based jobs in design, engineering, management, distribution and retail. The product was also generating about 27,000 overseas jobs, so no big surprise there. However, when the researchers looked at the value of the work, they estimated that about $750 million in earnings were going to U.S.-based workers, and less than half — about $320 million were going abroad.
In short, sourcing from China is sometimes a good business decision — and when it is, you don’t need to apologize for it.