Mar 4, 2010

Making sense of the ISM "Report on Business" - Feb 2010

image

Often, there are very few valid sources that one can trust to act as key indicators for the state of the economy as a whole. The ISM Report on Business is one such report published by the Institute for Supply Management on a monthly basis. I believe this is one of the few reports that gives a holistic viewpoint of how the market is acting at any given time of the year. I look to this report for pointers every so often, like my review of the ISM ROB in December. I’m going to try and break down the February report.

 

ANALYSIS:  In a nutshell, the economy is continuing on its path of recovery, as predicted – but it is taking its time. I could spot a couple of positives as soon as I saw the manufacturingimage report.

  • Employment is growing faster (2.8% growth in Feb) and the trend has been continuing for 3 months now. Its obvious why this is a good thing.
  • Inventories did increase from Jan to Feb but the change was minute. Also, the general direction of inventories is ‘contracting’. This is good too because it signifies that companies are not taking things for granted and stocking up – at least not yet.

Also, as you can see from the screen grab, out of the top 6 categories in imagethe manufacturing report, five categories (with the exception of employment) have been seeing a continuing trend for over 6 months with inventories topping out at 46 months.

 

New orders have dropped significantly from Jan to Feb – but this is probably an isolated dip rather than a  trend in itself. The new orders should rise again in March when the budgets are out and spending begins. This is one reason why I feel the 6 months from April to October of 2010 are going to be extremely important from a holistic perspective as the optimism in the economy in these months is going to directly affect sales in the 2010 holiday season.

 

The imageNon-Manufacturing index has registered 2.5 percentage points higher than last month at 53%. Generally, growth in Manufacturing is a leading indicator for growth in the Non-Manufacturing sector. I believe we’re going to see stronger numbers in the NMI in the coming few months fueled by spending on SaaS services with the goal of reducing costs and increasing overall value to the organization. Consumer spending is going to be they key to overall economic recovery. It does make up a sizeable percentage of the US GDP.

 

NOTE: As a side note, I’d like to add a few lines about the importance of the role supply chains are going to play in the economic recovery. The article is from an article about a Toronto Conference.

In five to fifteen years, the rise of India and China, an aging demographic within the industrial world, and integrative trade and global value chains will be additional factors to deal with.

 

Supply chain management becomes ‘critical to success’, said Hodgson, who noted that firms having an international strategy “built around integrative trade will be in better shape.”

 

“The whole fundamental model for doing business today has changed. Canadian structural challenges include fiscal deficits and debt, an upward shift in the loonie, NAFTA ‘drifting’ with North American trade stalling as the US focuses on security, the dominance of global value chains, and energy and climate change policy.”

You can read the whole article here. I would like to thank Douglas Bachelor for the source. Food for thought anyone?? Shoot a comment and let me know what you think.

Mar 4, 2010

Making sense of the ISM "Report on Business" - Feb 2010

image

Often, there are very few valid sources that one can trust to act as key indicators for the state of the economy as a whole. The ISM Report on Business is one such report published by the Institute for Supply Management on a monthly basis. I believe this is one of the few reports that gives a holistic viewpoint of how the market is acting at any given time of the year. I look to this report for pointers every so often, like my review of the ISM ROB in December. I’m going to try and break down the February report.

 

ANALYSIS:  In a nutshell, the economy is continuing on its path of recovery, as predicted – but it is taking its time. I could spot a couple of positives as soon as I saw the manufacturingimage report.

  • Employment is growing faster (2.8% growth in Feb) and the trend has been continuing for 3 months now. Its obvious why this is a good thing.
  • Inventories did increase from Jan to Feb but the change was minute. Also, the general direction of inventories is ‘contracting’. This is good too because it signifies that companies are not taking things for granted and stocking up – at least not yet.

Also, as you can see from the screen grab, out of the top 6 categories in imagethe manufacturing report, five categories (with the exception of employment) have been seeing a continuing trend for over 6 months with inventories topping out at 46 months.

 

New orders have dropped significantly from Jan to Feb – but this is probably an isolated dip rather than a  trend in itself. The new orders should rise again in March when the budgets are out and spending begins. This is one reason why I feel the 6 months from April to October of 2010 are going to be extremely important from a holistic perspective as the optimism in the economy in these months is going to directly affect sales in the 2010 holiday season.

 

The imageNon-Manufacturing index has registered 2.5 percentage points higher than last month at 53%. Generally, growth in Manufacturing is a leading indicator for growth in the Non-Manufacturing sector. I believe we’re going to see stronger numbers in the NMI in the coming few months fueled by spending on SaaS services with the goal of reducing costs and increasing overall value to the organization. Consumer spending is going to be they key to overall economic recovery. It does make up a sizeable percentage of the US GDP.

 

NOTE: As a side note, I’d like to add a few lines about the importance of the role supply chains are going to play in the economic recovery. The article is from an article about a Toronto Conference.

In five to fifteen years, the rise of India and China, an aging demographic within the industrial world, and integrative trade and global value chains will be additional factors to deal with.

 

Supply chain management becomes ‘critical to success’, said Hodgson, who noted that firms having an international strategy “built around integrative trade will be in better shape.”

 

“The whole fundamental model for doing business today has changed. Canadian structural challenges include fiscal deficits and debt, an upward shift in the loonie, NAFTA ‘drifting’ with North American trade stalling as the US focuses on security, the dominance of global value chains, and energy and climate change policy.”

You can read the whole article here. I would like to thank Douglas Bachelor for the source. Food for thought anyone?? Shoot a comment and let me know what you think.