Digging Into the Dismal Manufacturing Numbers

If you make stuff, chances are you're feeling the pain. Times are hard. Heck, they're hard for all of us who don't make stuff. But manufacturers are feeling the most rapid and acute pinch from the downturn. Over on Supply Chain Matters, Bob Ferrari recently penned a useful summary post on the subject that provides some basic facts as well as his expert analysis. According to Bob, "while the index ratings are certainly a cause for concern, I would not recommend taking drastic gloom and doom reaction that seems to be the reaction of the business press." Consider the horrendous picture a 38.9 score -- the lowest in 26 years -- paints in ISM's latest manufacturing numbers. But dig below the surface as Bob does: "October saw some of the upstream after-effects of the two hurricanes that struck the U.S. Gulf coast, impacting petroleum and petrochemical production. October also included the total disruption of the Boeing supply chain as a result of a six week long work stoppage that began in September. Aircraft represent a considerable value of shipments, and I suspect contributed to a lowered index. The after effects of the meltdown on Wall Street that impacted both the availability of credit, as well as the high uncertainty related to liquidity of large and smaller manufacturers no doubt also presented buyers and suppliers with a state of confusion."

Bob believes that we should look to China as a more accurate gauge of real manufacturing activity. There, while the picture is not rosy, it's not bleak. Still, it is a "real index for concern, since it represents a broader indicator of multi-industry manufacturing and supply chain activity. If over the coming months, manufacturers in China begin to find a lack of export demand for their goods, then some drastic measures may come about to insure survival. Overcapacity leading to price dumping is not out of the question. This is the one set of factors to watch in the coming months." Sage advice from my old friend and supply chain expert, Bob Ferrari. And yes, Bob, I agree that supply chains matter. But spend matters more because without it, there would be no chain 😉

- Jason Busch

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