Subscribe to our free, weekly email newsletter!


Logistics business: ISM manufacturing report shows continued growth

image
By Jeff Berman, Group News Editor
June 01, 2010

Although the numbers are not quite as strong as the previous month, the economic recovery appears to be on solid footing, according the May manufacturing report from the Institute of Supply Management.

The index the ISM uses to measure the sector, or PMI, came in at 59.7 percent in May, down from 60.4 percent in April. Any reading that is 50 or better represents economic growth. May represents the tenth consecutive month that the PMI has eclipsed 50, with the overall economy has been on a growth track for 13 straight months. Annually, it is significantly higher than the 40 percent PMI from May 2009.

Norbert J. Ore, the chair of the ISM’s Manufacturing Business Survey Committee, said in a statement that the rate of growth as indicated by the PMI is driven by the continued strength in new orders and production. New orders matched April’s output at 65.7 percent, and production was nearly even with April, down 0.3 percent at 66.6 percent. Ore added that employment continues to grow, with manufacturers adding to payrolls for six consecutive months. May employment was up 1.3 percent at 59.8.

And the ISM stated that 16 of the 18 manufacturing industries reported growth. Ore said in the past only ten or 12 industries were showing growth, explaining that this shows the recovery may be going in more directions.

“New orders and production were so close to [April] that I would not consider the difference to be anything but noise in the PMI,” said Ore. “It really says that April was a very good month, and May was almost in every respect as good as April was. And we are continuing a very strong trend that began when we saw things really picking up earlier in the year.”

Inventories—at 45.6 percent—were down 3.8 percent from April. Even though it is below 50 percent, the ISM notes that an Inventories index exceeding 42.6 percent is consistent with expansion in the Bureau of Economic Analysis’ figures on overall manufacturing inventories.

This number inventory growth is still occurring, which Ore said is positive, as long as it is not excessive.

“I always look at the inventory-to-sales ratio…as sales improve, you obviously want to see inventories getting higher also in order to support higher levels of sales,” said Ore.

Ore said a way of checking on the overall health of inventories is to take the reading for new orders at 65.7 and subtract the inventories index from that at 45.6, which is 20.1 percentage points higher that orders are growing faster than inventories. This, according to Ore, is very positive and indicates that manufacturing is operating closer to capacity.

But if the difference between new orders and inventories was in the neighborhood of 10 percent, Ore said there would be more concern. But a difference of 20 indicates new orders are very strong, and inventories are trying to catch up.

Even though the ISM PMI has been strong for s sustained period, there are other indices—such as employment growth—that suggest more needs to occur for the economy to truly rebound. When asked what needs to occur for other indices to demonstrate growth, Ore commented that the manufacturing sector represents about 12 percent of GDP on an expenditure basis.

And if the rest of the economy were growing at a similar rate the GDP would be growing at an annual rate of about 6 percent, according to Ore.

“The problem is the services sector, which is significantly [larger] than manufacturing, and the segment of small business, which does overlap with the services sector, are barely growing,” said Ore. “The problem is those are the biggest job creators, and until we see those pickup and see significant growth—and we will see it in the services sector for large services sooner than small businesses, which have been hurt terribly.”

Ore cites a lack or directed public policy as the reason small businesses are hurting. And the sectors where growth is much smaller (less than 2 percent) are the ones that continue to have the hardest time.

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

In the third-party logistics (3PL) sector, the ongoing trend of merger and acquisition (M&A) activity never seems to take a break. That is apparent in recent weeks alone, with XPO Logistics recent acquisition of Norbert Dentressangle for $3.53 billion, Echo Global Logistics scooping up Command Transportation for $420 million, and Kuehne+Nagel buying ReTrans for an undisclosed sum.

During this webcast attendees will learn about technology that is delivering real-time tracking on freight and putting an end to the all too common question of “Where’s My Brokered Load?”. Whether you’re a broker, 3PL, shipper, or carrier, find out how you can gain automated, TMS-integrated visibility on all your shipments.

FedEx recently took another step in its plans to acquire Netherlands-based TNT-NV and a provider of mail and courier services and the fourth largest global parcel operator for $4.8 billion, which it announced in early April. The company said it has “submitted the required filing to the European Commission to obtain regulatory clearance in connection with the intended recommended public cash offer all issued and outstanding ordinary shares in the capital of TNT Express.”

The American Trucking Associations last week praised Senator Deb Fischer (R-Neb.) for her bill that takes some positive steps towards alleviating the current environment regarding the truck driver shortage.

Global third-party logistics (3PL) services provider Kuehne+Nagel (KN) said this week it has entered into an agreement to acquire ReTrans Inc., a Memphis-based provider of multimodal transportation services.

Article Topics

News · All topics

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2015 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA