Manufacturing data provides blueprint for economic growth

Third quarter GDP growth was up 2.5 percent compared to 1.3 percent in the second quarter. And according to the Institute for Supply Management (ISM), its most recent PMI, which gauges manufacturing output, hit 50.8 in October, which equates to 2.9 percent GDP growth.

As LM has reported, any PMI reading at 50 or higher indicates economic growth is occurring.

That said, manufacturing is indeed making a significant contribution to overall GDP growth and perhaps leading the way, said Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, in a recent interview.

“If the rest of the sectors were at our level, real GDP would be closer to 3 percent,” said Holcomb.

What’s more, this strong manufacturing gains are coming at a time filled as any with economic uncertainty, given the current situation in Europe with the fate of the Euro hanging in the balance and myriad Southern European nations dealing with debt issues, relatively slight consumer spending here at home, and stagnant unemployment and housing markets.

The ISM’s manufacturing PMI was north of 60 for the first four months of 2011, a pace that even back then would be incredibly hard to maintain in this economic climate.

“Things were going gangbusters and in that type of environment you want to position yourself with higher inventories,” said Holcomb. “But with the PMI now in the low-50s over the past four months, lower inventory levels [October’s was 46.7] represents a bit of a wait and see attitude, with manufacturers posturing to be lean and flexible. A low inventory given the current PMI levels are good and that needs to be taken into consideration when looking at the big picture.”

And at the moment, there is now more of a broadly positive optimistic tone than there has been in the last few months, observed Holcomb.

Now, more than ever, perhaps, managing inventories correctly and proactively is more imperative than it has ever been for shippers.

This is especially true when taking a long view of the 2011 Peak Season, which was very slow to materialize, if really occur at all, due in large part to shippers being cautious in not wanting to face the ordeal of being stuck with too much stock, as was the case in a big way following the 2008 holiday season.