Though it’s too early to call growth, a few more data points from the latest Institute of Supply Management’s April 2009 Report on Business indicate a line has started to form (readers will recall we look for three data points to indicate a trend). April’s report appears to support the notion that the economy has neared a bottom. The rate of decline has continued to slow and several key measures have turned positive.
For the first time since July of last year, a couple of indicators may actually move into growth country as soon as next month’s reading. We’ll start with customer inventories. As we previously wrote when inventories shrink too far, production eventually increases. When production increases and inventories rise, GDP rises too. With regard to customer inventories, the index registered 49.5%. A reading of 50% or less indicates that respondents believe their customers’ inventories are too low at this time. In terms of metal buying industries, customer inventories that remain too low include primary metal, misc. manufacturing, and machinery, among others (though not metal-related). The most upbeat aspect of the latest report ” the customer inventory index has not dropped below 50% since July 2008.
The PMI has also started to close in on positive ground. According to Norbert Ore, Chair of the Institute of Supply Management, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through April (37 percent) corresponds to a 1.3 percent decrease in real gross domestic product (GDP). In addition, if the PMI for April (40.1 percent) is annualized, it corresponds to a 0.3 percent decrease in real GDP annually.” April’s PMI increased to 40.1 from 36.3 ” contraction yet still but moving in the right direction.
New orders also improved over March (from 41.2 to 47.2) but growth requires a reading of 48.8 over a period of time. So this reading, though not indicative of growth, does show the trend moving in the right direction. Industries showing growth in new orders in April related to metals include: electrical equipment, appliances and components, misc. manufacturing and machinery.
Finally, whereas deflation has dominated metal buying headlines as well as most raw materials in general for the past seven months, copper prices have increased. Copper represents the first and only purchase category to face price increases for two months in a row.
Not that copper price increases represent positive news for buyers, however, the ISM suggests positive economic news. The key becomes the trend line and where some of these borderline numbers go for the month of May such as customer inventories and new orders. Welcome news for manufacturing!