And no producer says it better than Alcoa CEO Klaus Kleinfeld at a recent investor conference, The distribution chain will generate this giant sucking sound of demand, when talking about how distributors will meet customer orders as the economy recovers. His statement matches some of the positive news from the Institute of Supply Management’s May 2009 Report on Business.
Last month we reported a couple of items had moved into positive territory (or moved closer to positive territory). Those items included customer inventories that went from a reading of 49.5 to 46. A reading under 50 indicates that respondents believe their customer’ inventories are too low at this time. Certainly Kleinfeld’s statement supports that view and given that this reading has now fallen under 50 for two months in a row, a line has formed. Next month will put this solidly into a trend (if the reading remains below 50). According to the Hellenic Shipping News article, manufacturers have started to prepare for a rebound by adding to inventory in anticipation of new orders. The second positive sign from this month’s report relates to the PMI. This number moved from 40.1 in April to 42.8 in May. And though a reading over 50 indicates an expanding economy, 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 May (38.1 percent) corresponds to a 1 percent decrease in real gross domestic product (GDP). In addition, if the PMI for May (42.8 percent) is annualized, it corresponds to a 0.5 percent increase in real GDP annually.”
Finally, the last piece of bright news involves new orders that finally crossed over the 50% threshold (51.1%). Of 18 manufacturing industries reporting, both primary metals and machinery reported growth in new orders. All good signs ” let’s hope the momentum continues.