Macroeconomic Data Analysis - U.S. Focus

by Bob Zieger

As the graphs and text that follow indicate, fourth quarter macroeconomic data continues to signify an ongoing recovery of the broader economy in the United States, and furthers the case for optimistic growth expectations in 2010.

Purchasing Manager’s Indexes

As mentioned in previous editions of Ariba SupplyWatch, these indexes provide a decent measure of the overall health of a supply sector. 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 of December, the Manufacturing Index posted five consecutive quarters of economic expansion, with the largest index numbers of 2009 all recorded in the fourth quarter. This is a definitive trend of manufacturing sector improvement, and provides a basis for optimism heading into 2010. The Non-Manufacturing Index, however, has continued to sputter, remaining relatively stagnant around the magic 50 mark.

The manufacturing expansion that commenced in the third quarter of 2009 was also reflected in the Plant Capacity Utilization figures published by the U.S. Census Bureau for the composite of all manufacturing sectors. Utilization rates have steadily increased from their first quarter of 2009 lows, when the average dipped below 60 percent. But while this illustrates improvement in the economic balance, overall percent utilization is still only in the mid-60s, indicating that oversupply remains a prevalent, significant factor in most industries.

The Non-Manufacturing Index is representative mostly of the services sector, and is heavily influenced by unemployment rates. This may explain why this sector has not achieved consistent growth signs yet. As we closed out the decade, unemployment rates hit their highest point of the decade (by far), exceeding double digits in the fourth quarter of 2009. This metric will continue to stand out as an economic focal point, since it is unlikely inflation will truly gain momentum as long as unemployment remains this significant.

Inflation
To track inflation potential in the U.S., we examine the Producer Price Index (PPI) and Consumer Price Index (CPI) published by the U.S. Commerce Department’s Bureau of Labor Statistics (BLS). The PPI rebound seen in November was driven mostly by energy prices, although even non-energy-based goods showed a modest increase. The CPI remained relatively flat, so it remains to be seen if the increase in producer prices will have an impact on the consumer market. It is too soon to assert that the PPI will lead to tangible inflationary pressures and even if it does, inflation will likely remain in check in the short and medium term.

Commodities increased steadily last quarter, but prices have remained subdued at levels significantly lower than the first three quarters of 2008. It is likely that the slow ascent will continue as the economy begins a sustained growth trend, especially if the U.S. dollar’s value slides further.

U.S. Focus

by Nicoleta Diaconu