For months, the ISM report on manufacturing showed a surge in growth and clear signs of a rebounding economy. It started dropping in May and did so again for the third straight month. The index number for July fell by 0.7 percentage points to 55.5% from 56.2%. Remember, any number above 50% suggests expansion, so this month’s number tells us that the growth rate has slowed, but not stopped. The stock market jumped on the news, not so much because of the positive trend, but that it didn’t fall as much as expected. It’s an example of the right move for the wrong reason.
A very telling piece of data from the report is that manufacturing employment is continuing to rise. The rate of growth has varied, but the indexes have been positive for eight consecutive months. Since manufacturing jobs tend to generate new jobs in other sectors the improving health of manufacturing is a good sign for the overall economy.
What this may mean for supply managers is that wild cycles of pricing swings based on erratic demand and speculation might be tempering. This might be an excellent time to review and revive the basics of managing categories, managing supplier relationships and managing opportunities for innovation. Smart purchasing has always had room for mitigating risks, but a slow and steady rate of growth is inherently less risky than a volatile economy. It might be time to play out your risk scenarios to find out if the latest numbers have changed the return on some of your “worst case” mitigation strategies.