ProcureCon Dispatch One: ISM Manufacturing Data is Ugly

Yesterday, Norbert Ore, the former Chair of the ISM Report on Business, presented some lackluster ISM data on the domestic manufacturing sector. He also punctuated his analysis of some of the US regulatory and tax problems plaguing the manufacturing sector by noting his own "one-person" company had to file a 40+ page tax return last year. But regarding the broader economic manufacturing outlook, things are even less pretty. Ore noted one general statistic that I had previously forgotten. Namely that "65% of all imports into the US are US companies manufacturing offshore and shipping to domestic facilities."

Yet in terms of the current challenge if you look at the recent trailing numbers from the ISM manufacturing index, one of the main issues is that "inventories are growing faster than new orders" and Ore notes this is "probably involuntary." In other words, companies aren't building inventory because they want to. It's because demand signals slowed down, and in turn, as organizations have seen a drop off in demand signals, they're being more conservative about placing new orders.

One number Ore likes to clean a close handle on using the ISM scale is manufacturing new orders minus inventories. This gauge gives a "strong reading" about the current state of the market. As you can imagine, this number has dropped materially in recent months as new orders have declined and inventories have crept up. One last statistic I'll leave you with from Ore's analysis is that new export orders appear to be creeping down, inching towards negative territory at 50.5 in August 2011, down from 54.0 in July (and 55 back in May). Given that much of the recovery was no doubt "manufacturing led" according to Ore -- an opinion we also agree with at Spend Matters and MetalMiner -- this falling number, combined with a strengthening dollar as the euro drops, is disconcerting indeed.

Jason Busch

Share on Procurious

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.