How Supply Managers See Business
Staff -- Purchasing, 1/15/2004 2:00:00 AM
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Purchasing's Leadtime Index (1992=100) leapt nearly 36 points between November and December. The increase was widespread, reflecting gains across nearly 90% of the commodity categories tracked monthly by purchasing-data.com. The trend bodes well for industrial production as manufacturers should start ramping up output to meet rising demand for goods. On a percentage basis, some of the biggest leadtime gains came in hydrocarbon-based chemicals: styrene, phenol, ethylene and benzene. Many electronic components— memory devices in particular—also saw substantial leadtime stretching in December. Still, most of the month-to-month leadtime increases reflect spot shortages affecting very small numbers of buyers rather than a general tightening of supply across entire markets.
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Forecasters have three key reasons for feeling sanguine about capital spending growth this year. First, corporate profits continue to rally strongly. Second, the cost of capital is low and likely to remain so for some time. Third, as economic growth expectations continue to rise, so too does the expected return on capital investments. Key forecasts: Latest consensus from the National Association of Business Economists (NABE) sees business fixed investment rising 10% this year (compared to an estimated 2.3% growth rate for '03).
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Employment growth continues to underperform forecasts, but small wonder considering that nonfarm productivity advanced at an annualized rate of +9.4% in Q3 up from an already-strong 7% growth rate in Q2. Unit labor costs fell at a 5.8% rate. For manufacturers, productivity rose at a 9% pace in Q3 while unit labor costs fell at a 4.5% rate.
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Worst fears of auto industry analysts appear to be coming true. When car companies cut back on sales incentives in October, annualized sales dropped to 15.5 million units. When they reintroduced the incentives in November, the sales rate shot back up to 16.7 million. Upshot: Profits growth for the automakers is going to have to come from more cost cuts, which is probably bad news for the automotive supply base. Good bet for 2004: Look around for auto suppliers looking to diversify their end markets; they may be hungrier for business than the usual sources and you can be sure their quality assurance systems are very good.
Tracking the economy
| Indicator | Period | Latest period | Previous period | Year ago | % Chg vs. year ago |
| Industrial production ( '97=100) | Nov | 112.9 | 111.9 | 110.8 | 1.9 |
| Manufacturing capacity utilization (%) | Nov | 74.3 | 73.7 | 73.1 | 1.0 |
| Housing starts (000s, saar) | Nov | 2070 | 1980 | 1760 | 17.6 |
| Housing market index | Dec | 70 | 70 | 65 | 7.7 |
| Mfg employment (000s) | Nov | 14542 | 14559 | 15091 | -3.6 |
| Producer price index (core, '82=100) | Nov | 151.2 | 151.3 | 150.9 | 0.2 |
| Consumer price index ( '82-'84=100) | Nov | 184.6 | 185.0 | 181.4 | 1.9 |
| Purchasing managers' index (mfg) | Nov | 62.8 | 57.0 | 50.5 | - |
| Purchasing managers' index (nonmfg) | Nov | 60.1 | 64.7 | 55.7 | - |
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