Monday, November 23, 2009

The Latest Manufacturing Recovery News... The National Activity Index

Today's article is about the Chicago Federal Reserve's National Activity Index. By understanding this index, you can get a clearer picture of the overall economy and sharpen the "crystal ball" in order to make better decisions. This index looks at numerous indicators, not just the "best one" or the "worst one". You can't pick the best indicator and tell everyone the economy has sprung back, nor can someone pick the worst (pessimistic) one and tell everyone that the sky is falling!!

The Chicago Fed National Activity Index was –1.08 in October, down very slightly from –1.01 in September. A decline in the contribution of production and income indicators offset small improvements in the other three broad categories of indicators that make up the index.

So what exactly is the National Activity Index?

The index is a weighted average of 85 indicators of national economic activity. The indicators are drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

What do the Numbers Mean??

When the CFNAI-MA3 value moves below –0.70 following a period of economic expansion, there is an increasing likelihood that a recession has begun. When the CFNAI-MA3 value moves above +0.70 more than two years into an economic expansion, there is an increasing likelihood that a period of sustained increasing inflation has begun.

Production Indicators

Production-related indicators-with a contribution of -0.07 in October compared with +0.23 in September - made a negative contribution to the index for the first time since June 2009. Much of the decline in this category's contribution can be attributed to lower manufacturing production. In particular, durable goods manufacturing declined 0.4 percent in October after rising 1.1 percent in September. Partially offsetting this was an increase in the Institute for Supply Management's Manufacturing Purchasing Managers' Production Index. It increased to 63.3 in October from 55.7 in the previous month.

Employment -Related Indicators

Employment-related indicators made a contribution of –0.46 to the index in October versus –0.60 in September. Payroll employment decreased by 190,000 in October after declining by 219,000 in September. Household employment also declined at a slower pace in October. However, the unemployment rate increased to 10.2 percent in October from 9.8 percent in September.

The Consumption and Housing Indicators

The consumption and housing category’s contribution to the index increased to –0.52 in October, following a contribution of –0.61 in September. Small gains in a number of consumption indicators accounted for much of the increase. In contrast, housing starts were lower in October at an annual rate of 529,000 units compared with 592,000 units in September.

The Sales, Orders, and Inventories Indicators

The sales, orders, and inventories category also improved in October, contributing –0.02, compared with –0.04 in September.

So What Does This All Mean??

The index's three-month moving average, CFNAI-MA3, decreased to -0.91 in October from -0.67 in September, declining for the first time in 2009. October's CFNAI-MA3 suggests that growth in national economic activitiy remained below its historical trend. With regard to inflation, the amount of economic slack reflected in the CFNAI-MA3 indicates low inflationary pressure from economic activity over the coming year.

Basically - the expansion that we saw in July through September finally levelled off and Inflation will be held in check for now.

This probably is no surprise to anyone, there will be ups and downs during our recovery. Appears that we will muddle along for a little while longer, but there have been good signs for all.

For the complete report from the Chicago Federal Reserve, click here.

Tuesday, November 17, 2009

Shippers, Carriers Project Growth Problems

Surge in 10 months could challenge capacity, cause driver shortage

Shippers and carriers expect there will be sufficient capacity in the domestic transportation system to handle the modest growth in traffic that will occur in the coming year, but eventually there will be a day of reckoning marked by driver shortages, higher fuel prices and capacity constraints.

Although traffic volumes were soft most of the year, a seasonal spurt in activity is underway and Schneider National is projecting that its volume in November will be higher than in November 2008, said David Howland, vice president of rail management.

Schneider expects transportation activity to "bounce along" for the next 10 months, followed by a rebound in August 2010, Howland said.

He addressed the annual transportation conference sponsored by the Intermodal Association of North America, the National Industrial Transportation League and the Transportation Intermediaries Association in Anaheim, Calif.

The domestic transportation environment in the current economic recession is defined by idle trucks and rail equipment, a surplus of truck drivers and furloughed rail industry workers. If modest growth occurs next year, BNSF Railway will have no trouble handling the increased work load, said Barry Russell, general director of marketing.

While Russell's views were echoed by the trucking sector, some shortcomings are noticeable that could present problems in later years. Fleet managers noted that their drivers' average age is in the low to mid-50s.

Also, so much capacity has been idled that a recent brief surge in activity strained truck and driver availability, said Wayne Johnson, director of logistics at American Gypsum.

Shippers and carriers also anticipate continued volatility in fuel prices, with the trend being toward higher prices as developing nations increase their consumption of petroleum products.
Although it may take some years, truck and rail traffic will return to the high volumes of 2006-07, and will continue growing beyond those levels. "When this industry takes off, it will be challenged to handle the load," added Gary Palmer, senior director of transportation at True Value, the hardware company.

One of the solutions offered by shippers was to encourage introduction of larger equipment such as 57-foot trailers and containers that will foster improved productivity.

Carrier executives do not favor that approach, noting that the pricing premium they might realize initially will soon disappear and their large capital expenditure to purchase new equipment will not pay off.

"When we went from 48-foot to 53-foot equipment, it didn't take long to go back down to 48-foot prices," Howland said.

Source of article: The Journal of Commerce

Tuesday, November 3, 2009

ISM Manufacturing Report Shows Continued Growth

Many major indices went up in October, but one ISM analyst says they may drop slightly as part of the overall growth process
Many of the manufacturing indices measured by the Institute for Supply Management (ISM) went up in October, some to unusually high levels, but don't expect them to stay that way, according to one analyst.

Norbert Ore, chair of ISM's Manufacturing Business Survey Committee, said today that new orders, production and employment all grew sharply, along with ISM's PMI, the index the institute uses to measure the manufacturing sector as a whole. However, Ore said those numbers may be a bit too high, and will likely drop a few points next month in what he called "a leveling off" on the economy's course toward recovery.

"This is not a robust economy," he said.

The PMI rose 3.1 percentage points to 55.7 percent in October vs. September's numbers. Any value over 50 percent, for most of ISM's indices, indicates growth. Ore said the PMI hasn't been this high since a 56 percent level recorded in April 2006.

A main part of that jump, Ore said, comes from upward leaps in both production, which went up 7.6 points to 63.5 percent, and employment which rose 6.9 points to 53.1 percent, the first time that index has broken the 50 percent barrier in months.

"Employment was a surprise," Ore said.

So much so, that Ore said he did not expect it will stay that high in November, nor will production or the PMI in general.

In particular, Ore noted that most of the increase in employment was due to the hiring of temps and "callbacks," or bringing back laid-off workers. While Ore did not have a breakdown of each, he speculated that true growth in employment figures-typically measured by an index value of 55 percent or more-could not be built on temp and callback hiring alone.

"It's got a little ways to go yet, and I'm going to be surprised if it stays above 50," Ore said.
Ore also cited a continued lack of consumer confidence, as well as oil prices "quietly" hitting $80 per barrel last week, as factors that will contribute to a fallback in numbers in November.

"An increase in oil prices is a tax on growth," he said.

Ore also noted a disparity in the Customers' Inventories index-which dropped slightly to 38.5 percent in October-and the Inventories index, which rose 4.4 points to 46.9 percent.

"The customer inventories [index] shows there are some major gaps in the supply chain," he said.

Ore said there were a multitude of factors responsible for the gaps, but ultimately, the coming months should show the gap shrinking.

"It's just an inconvenience more than anything else," he said.
This article was found in Logistics Management. For a link to their site, click here.