INDUSTRIAL DISTRIBUTION: TENTATIVE SIGNS OF TURNAROUND, DESPITE FALL IN NUMEROUS INDIVIDUAL INDEXES

Industrial Distribution’s Jack Keough studies key indexes, especially the inventory index, on the road to recovery. He writes. “The brightest news may have come in the inventory index, based on a comparison of inventory levels in the second quarter of 2009 with those of one year ago. It dropped to 15 percent in June from 37 percent in March, indicating that manufacturers are making substantial progress in paring an inventory overhang.” Check out other key indicators in his article.

Industrial Distribution Excerpt:
The road to recovery in the manufacturing sector will likely be slow, arduous, and painstaking, but there is some evidence that the worst has passed, according to the quarterly Manufacturers Alliance/MAPI Survey on the Business Outlook-June 2009 , a leading indicator for the industrial sector. The June 2009 composite index rose to 24 from an historic low of 21 reported in the March 2009 report.

At 24 percent, the index indicates that overall manufacturing activity is expected to contract over the next three to six months. While the index is at its second lowest level since the survey originated in March 1972, it marks the first time it has shown improvement since June 2007. The survey was conducted on a semi-annual basis from 1972 to 1991 before being conducted on a quarterly basis in 1991. It should be noted, however, that the index measures the direction of change rather than the absolute strength of activity in manufacturing.

The June 2009 index of 24 marks the fourth consecutive quarterly reading below 50, the demarcation point between growth and contraction, and pales in comparison to one year ago when the June 2008 index registered at the 50 mid-point.

“The small rise in the composite index and the improvement in a few of the individual indexes indicate that the manufacturing sector is no longer in a freefall,” said Donald A. Norman, Ph.D., MAPI Economist and survey coordinator, “even as the forward looking indexes point to lower activity over the next three to six months.” Norman noted that most of the individual indexes are based on year-over-year comparisons-a year ago manufacturing activity was down somewhat, but still at a relatively high level. Given the sharp fall in activity over the past nine months, it is hardly surprising that year-over-year comparisons have resulted in sharp declines in the indexes.

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