2011 starts with manufacturing momentum

Yesterday’s ISM Manufacturing Survey reported economic activity in the manufacturing sector expanded in December for the 17th consecutive month. Norbert Ore, chair of the ISM manufacturing survey committee said, “the average PMI for January through December (57.3 percent) corresponds to a 5.1 percent increase in real gross domestic product (GDP).” That’s based on the historical relationship between the manufacturing index and the GDP.

The story for procurement professionals in the report is that manufacturers noted price increases in 23 different categories of commodities. Metals, chemicals, fuel, and grains were all there. Since the whole world seems to be shaking off the recession, upward price pressure is likely to continue for the foreseeable future.

Oil seems to be a particularly worrisome category. According to the Wall Street Journal, Goldman Sachs is predicting crude oil prices up to a $100 per barrel again this year. However, the Journal also says OPEC has a self-interest in keeping price hikes moderate because the giant spike in 2008 was one of the factors that killed the global economy. According to the Journal, that might have been a short-term windfall for OPEC, but the more stable prices through 2010 were really a better long-term deal for oil producing countries. And consumers as well. If oil prices cannot be contained and other commodities spike as well, the slow growth out of recession could still be in jeopardy.

 

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