Try combing the mass media for some positive economic news and let me tell you, it’s hard to find! But when I speak to folks both in and out of manufacturing, the picture is not as doomsday as the mainstream press would have you believe. Okay, I’m not saying everyone is having the best year, but we are hearing that firms are holding their own. I thought you would get a chuckle out of this headline I saw today from the Financial Times entitled: US Midwest Business Activity Contracts. Wait a second, no the headline isn’t funny but the first sentence of the article is, “A pick-up in US new orders and production helped a barometer of regional business activity decline less than expected last month alleviating some of the concerns about the outlook for the US economy.” To reiterate, it’s not wonderful news to be sure, but why so negative?Perhaps negativity sells.
This business activity report published by The National Association of Purchasing Managers showed overall economic contraction (a reading of less than 50 is indicative of a contracting economy vs. a reading of over 50). The index came in at 48.2 for March but this represents a huge improvement from February’s 44.5 reading. One non surprising finding relates to the prices paid for raw materials and other value-add inputs. This index increased from 79.4 to 83.9, according to the survey.
We recently chatted with a VP of Global Procurement for a middle market holding company (they own 7 companies within their portfolio) and their biggest issue is the rising cost of steel. However, as a portfolio, their companies are growing this year. Export orders are up and the balance of end-user industries has helped the holding company weather the storm.
We see strength in demand from other companies ranging from electronic manufacturing to capital equipment (the NAPM activity report indicated a sharp increase in new business orders from 48.8 to 53.9). Purchase volumes are holding steady. Again, perhaps not for all industries but it sure does not appear to be a doomsday scenario for everyone.
Later today, the Institute for Supply Management’s manufacturing index will also be released and though we are likely to see this index also come in under 50, personally I’m going to be looking for that cloud with a silver lining…