Supply Chain Managers to Remain Prudent, Say Economists

Shippers may have been cheered by last month’s manufacturing report issued from the Institute for Supply Management, but other key indicators suggest caution.

While ISM noted that economic activity in the sector had expanded for 34 straight months prior to contraction in June 2012, IHS Global Insight economists are more circumspect.

Productivity has been subdued recently after surging in the wake of the Great Recession, when firms slashed payrolls and squeezed more from their existing workforces.

IHS Global Insight US Economist Erik Johnson told SCMR that he does not expect supply chain managers to invest “sharply” in new technologies, either.

“Don’t count on gains in this area,” he said. “But at the same time, we don’t see managers making significant workforce reductions.”

Spikes in productivity are expected following recessions, says IHS, but they aren’t typically followed by extended periods of muted productivity growth. During the 14 quarters since the economy emerged from the recession, productivity has been growing at a 1.5% annual rate. This is the slowest rate among the nine postwar expansions that have lasted that long.

Finally, IHS forecasts that output growth should decline in the second quarter as the sequester kicks in.

Economists there don’t expect the labor market to “fall off the cliff,” and say shippers may therefore see another weak productivity reading in the second quarter. But the underlying fundamentals in the economy are trending upward, and 2013’s employment growth should be in line with 2012’s.

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