ISM: Good and Bad News for 2009
By Sean Murphy, Associate Editor -- Supply Chain Management Review, 5/5/2009
Experts from the Institute for Supply Management (ISM) remain cautiously optimistic about a possible economic recovery later this year, as two key ISM reports released today offer both a snapshot of the current situation and a forecast for the rest of 2009.
Norbert Ore, chair of ISM’s manufacturing business survey committee, and Anthony Nieves, chair of ISM’s non-manufacturing business survey committee, both talked to SCMR about ISM’s report on the non-manufacturing sector for April, and ISM’s semi-annual economic forecast for 2009.
According to the April report, the Non-Manufacturing Index (NMI) rose 2.9 points to 43.7 percent. Like the PMI in ISM’s manufacturing report issued on Friday, the NMI is edging toward 50 percent, above which it won’t be considered “in decline.”
Still, while he acknowledged the rate of decline is slowing, Nieves was cautious about celebrating too soon, as the NMI still shows a decline. With only a month of positive change, Nieves said “It’s still premature” to declare the economy in recovery.
Nieves said he and Ore both believed some sort of recovery would take place in 2009, but Nieves won’t be satisfied it’s actually happening until the NMI goes above 50.
It also needs to stay there. Nieves pointed out that in January and February of 2008, the NMI showed a decline, then went above 50 in March, only to drop back down in April, and it hasn’t recovered since.
The April non-manufacturing report also showed a jump in new orders, from 38.8 percent to 47.0 percent, an 8.2-point rise. If that continues, Nieves said, “That will tell us that things are definitely turning around.”
Nieves said he’s also watching employment, a major factor in the non-manufacturing sector. According to the April report, the employment index is also up, by 4.7 points, to 37 percent.
In addition to other indices continuing to go up, Nieves said, “I’d like to see unemployment really stabilize,” before concluding an economic recovery is under way.
ISM’s forecast for 2009 still indicates a likely decline overall. The report predicts a 14.7 percent decline in manufacturing revenue, a decrease in capital investment of 22.7 percent, and capacity utilization at 67 percent.
On the non-manufacturing side, the report forecasts a 5.1 percent decrease in revenue, a decrease in capital investment of 13.5 percent, and a capacity utilization of 80.1 percent.
Ore said the capacity utilization numbers are the lowest since ISM began tracking the figures in 1985.
Still, Ore remained optimistic, noting that the predicted figures are for the whole of 2009. It does not mean that a recovery could not start before the end of the year. Even a boost in manufacturing in the fourth quarter of this year wouldn’t stop the overall picture of 2009 from showing negative results, Ore said.
“It won’t be enough to offset the year as a whole,” he said.
Nieves said he will be watching prices for the rest of this year. According to the forecast, prices in Manufacturing are expected to decrease a total of 5.3 percent for the entire year, and remain flat in the non-manufacturing sector, but the forecast predicts prices will go up in both sectors toward the end of 2009.
Nieves said if the predictions come true, a rise in prices will be another good sign of stabilization.
“There is this potential that we might see the bottom very soon, if we’re not already there,” he said.
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