U.S. Supply Chain Managers Are Advised to Curb Their Enthusiasm Until Global Markets Pick Up

While the Institute of Supply Management (ISM) reports that economic activity in the manufacturing sector was strong for the sixth straight month, supply chain managers may still wish to examine this “exuberance,” say economists.

As reported in Supply Chain Management Review, the ISM for manufacturing firmed once again, climbing to 57.3 for its best score since April 2011 – more than two and a half years ago. Both production and new orders topped 60 at 62.8 and 63.6, respectively; they also last reached such heights in early 2011. Backlogs firmed to 54 and inventories remained in the black at just over 50 at 50.5. Employment also crept over the 55 mark, and exports climbed to 59.5 for their best showing since early 2012.

But there’s still reason for skepticism, says Michael Montgomery, U.S. economist with IHS Global Insight.

“The problem remains the chronic lack of confirmation in government data on manufacturing,” he says. “It shows gains as barely over tepid growth, but the ISM and now the Markit Economics readings show gains that in the former case would be called robust and in the latter case would be deemed solid.”

Montgomery adds that the surveys seem to be reporting that the strengthening is broad-based, and the most recent industrial production data did show that the gains, indeed, were broad-based.

So, what does it take for gains to be both broad and deep?

It takes the world manufacturing and goods trading market to all be moving in synch, say IHS economists.

“Right now the world is growing at multiple different speeds,” says Montgomery. “The U.S. and Japan are both reporting good gains in the surveys. The UK is booming, but the Eurozone and China are struggling with very modest gains. If China and Europe can catch up to the growth pace of the other three the manufacturing sector will be on a roll, with one side of the ocean pushing the other to strength, then in turn spurring growth in the first.”

That synchronization, says Montgomery, is currently absent as Europe struggles with its structural problems.

“There is more hope that China can join the ‘cool kids’ in reporting decent gains,” he says.

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