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Institute for Supply Management Index Rises in August

The newly released Institute for Supply Management’s Index, a barometer of manufacturing inventories, rose more than 8% to 52.9 in August—up from 48.9 in July. A reading above 50 indicates expansion and growth, while a number below 50 means economic contraction.

For optimists looking for signs that the economy is pulling out of the recession, the Institute for Supply Management’s bellwether Index is welcomed news. The spectrum of companies that reported growth during the month of August ranged from manufacturers of textiles and paper products to suppliers of computers, electronics, appliances, and chemicals. At the same time, these companies reported that new orders were flowing in, production was ticking up, and their prices were rising.

Case in point: Allied PhotoChemical, a Kimball, Mich.-based manufacturer of environmentally sensitive ink, paints, and coatings. Approximately 40% of its business disappeared last year as the economy swooned, but Allied’s president, Mike Kelly, said the company had gone after new customers and resisted the reflex to slash its work force. According to Kelly, Allied was now running at about 65% capacity, compared with a low of 40% early this year.

“You could hear the crickets chirping,” he told The New York Times. “Our suppliers were calling us, giving us automatic price reductions. They were panicking. Now they’re happy. They’re even beginning to have some product shortages.”

Economists and industry watchers say the Institute of Supply Management’s Index has been trending in a positive direction for some time now, fueling the belief that—based on past recessionary episodes—that the turnaround has begun. “PMI has been up for five consecutive months, which puts us at a point where previous recoveries have begun,” said Dr. Ken Mayland, president of Clearview Economics, in his address to attendees at the SUR/FIN 2009 conference and exhibition in Louisville, Ky., back in June. Based on historical patterns seen in past recessions— 1973–75; 1981–82; 1990–91; and 2000–01—this is typically the point where a recovery begins, Dr. Mayland added. 

Others are in agreement. “We’re at a very early stage of the upturn, and I think it’s going to gradually build steam,” David Huether, chief economist of the National Association of Manufacturers, told The New York Times.

Still, most industries are not hiring, an indication that the labor market remains weak. The manufacturing employment index contracted again in August, although at a slower pace than in past months. Four industry groups said their payrolls were growing while nine reported decreases. Overall, manufacturing jobs have been devastated by the recession, with some 2 million positions lost since the downturn’s beginning in December 2007.

Source: The New York Times, Metal Finishing magazine
 

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