Logistics and manufacturing business: Economy still has ways to go despite recent signs of optimism
Wednesday, 15 April 2009 09:43


Jeff Berman, Group News Editor -- Logistics Management, 4/10/2009

Despite some recent economic indicators that portend some optimism for an economic recovery, there is still a long way to go, especially when looking at the big picture, according to various supply chain and freight transportation industry stakeholders.

Some of the encouraging news can be viewed in parts of recent reports from the Commerce Department and the Institute of Supply Management. The Commerce Department reported this week that wholesale inventories in the United States fell 1.5 percent in February. The decline represents the biggest monthly wholesale inventory cut in more than 17 years, coupled with a 0.6 percent increase in overall sales, which marked the first time sales were up since last June. A report in the Wall Street Journal noted that the 1.5 percent inventory decline indicates “companies have been trimming supplies, wanting to keep lean and not get bogged down under too much unsold merchandise.”

Other signs of potential good news: include exports rising 1.6 percent in February to $126.8 billion, according to Commerce Department data for its first monthly gain since July 2008, and a $26 billion trade deficit in February, down from $36.2 billion in January for the smallest trade gap deficit since November 1999; and the Institute of Supply Management’s most recent Manufacturing Report on Business noted that while growth is still a long ways off, its new orders index was 41.2 percent in March—compared to 33.1 percent in February—and up substantially from a December low of 23.1. The ISM report also stated that its employment and prices indices were up modestly, too. And manufacturer inventories in March were down 4.8 percent at 32.2, while customers’ inventories were up 3.0 percent at 54.0, according to the ISM. The continued uptick in customer inventories is another indication that consumer spending remains sluggish and is impacting freight flows.

“This 32.2 percent figure indicates raw material inventories are probably getting adjusted to the new levels of demand, but the problem is the customers’ inventories—as a measure of finished goods inventory—is not positive at all,” said Norbert J. Ore, chairman of the ISM’s Manufacturing Business Survey Committee, in a recent interview. “The next move I am looking for is for customer inventories to fall below 50, indicating that supply chains have finally made the correction that has been made for raw materials.”

And when inventories are eventually in line, it might lead to the new orders index to go positive, which may lead to an increase in business activity across various sectors, explained Ore.

Thom Albrecht, managing director of Stephens Inc., wrote in a research note that if inventories continue to be drawn down it would represent a “modest positive for future freight” flow.

Even though these inventory and trade figures lend some reason for optimism, research from Panjiva, on online search engine with detailed information on global suppliers and manufacturers, paints a pretty stark picture about the current economic climate.

The firm’s research revealed that there is a 10 percent decrease in the number of manufacturers shipping to the U.S. from January 2009 to February 2009, declining month-to-month from 131,000 manufacturers to 118,000 manufacturers. In 2008, the numbers were decidedly different, with 147,000 global manufacturers shipping to the U.S. in January, followed by 148,000 in February. Panjiva CEO Josh Green told LM this data is based on publicly available shipping information from U.S. Customs in which Panjiva identifies companies shipping to the U.S.

“This decline is primarily the effect of weakening demand on the consumer side, which is playing out in the supply chain,” said Green. “The weakening demand at the end of 2008 resulted in companies cutting orders…resulting in fewer companies shipping goods to the U.S.”

One piece of good news, though, said Green is that prior to the economic downturn, there was a “factory bubble” with a high number of manufacturers going online that were probably more than the market needed. Now, he said, that is being corrected, leading to the question of whether this is the global manufacturing sector falling off a cliff, which could lead to long-term production problems, in the sense that in the future there may be too few suppliers available to meet manufacturing demand when the economy recovers, which has the potential to lead to supply chain disruptions in the future.

(Source: http://www.logisticsmgmt.com)