U.S. Focus

This is a new feature in Ariba SupplyWatch where leaders in our Category Management Organization will examine macroeconomic data in key regions of the world and comment about what the numbers mean for procurement and sourcing professionals.

Purchasing Manager’s Indexes

These indexes provide a decent measure of the overall health of a supply sector, since the readings factor key metrics in areas such as employment, inventory levels, bookings forecasts, and pricing forecasts. Essentially, an index reading above 50 indicates a market in expansion mode, and an index reading below 50 indicates a market in contraction mode, or recession.

As the graph above illustrates, there have been slight improvements in both the manufacturing and services numbers over the past few months. The Non-Manufacturing Index (NMI) bottomed at 32.4 in December, and since then has remained above 40 for three consecutive months. Likewise, the Manufacturing Index (PMI) reached a low of 35.6 in January and has since recovered slightly. While both indexes have shown slight improvement, these numbers by no means indicate positive trends for either the manufacturing or services sectors of the economy. The bottom line is that both numbers remain well below 50, so clearly both sectors are still in contraction mode and the recession remains firmly entrenched.

Inflation
To track inflation data in the U.S., we examine two pieces of data published by the U.S. Commerce Department’s Bureau of Labor Statistics (BLS). First of all, we look at the Producer Price Index (PPI) instead of the Consumer Price Index to get a leading indication on inflation trends in both the manufacturing and services sectors. As you can see in the chart below, the PPI has been falling since July of last year and appears to have bottomed in December.

The Import Price Index, also published by the BLS, generally tracks the PPI, but also provides an important inflation indicator given that the U.S. remains a net importer. As you can see in the folowing chart, the Import Price Index confirms that inflation is under control despite record-low lending rates and the enactment of global fiscal
stimulus packages.

GDP Data

This graph still pinpoints the start of a recovery in the U.S. sometime in the third quarter, although the consensus forecasts for every quarter of 2009 were recently modified downward according to a poll of economists by the Wall Street Journal. We agree with this report and believe the impact of the stimulus package will fuel growth starting in the September timeframe. However, the job market will lag the broader economy, and unemployment will likely continue to increase throughout 2009.

U.S. Focus

by Nicoleta Diaconu