Share |

Focus: Supply Chain Trends/Issues

Feature Article from Our Supply Chain Trends and Issues Subject Area - See All

From SCDigest's On-Target E-Magazine

SCDigest Editorial Staff

Jan. 3, 2011

Major Macro Trends Impacting the Supply Chain in 2010

Most Indicators were Positive in 2009, but Weaker than Many Past Economic Recoveries; Factory Utilization Still well Below Historic Average, Despite 16 Straight Months of Manufacturing Growth

SCDigest Says:

2010 showed strong PMI numbers all year, and the 56.6 metric for November marked the 16th consecutive month the PMI was above 50 in the US.

What Do You Say?

Click Here to Send Us Your Comments

Click Here to See Reader Feedback

After the disastrous year of 2009, one of the worst economically since the Great Depression, 2010 was certainly a better time for most, though economic recovery remained wobbly, companies and consumers remained mostly wary and conservative, and developing markets were where most of the action was.

We will be doing a more in-depth review on the Year in Supply Chain later this week, but thought it would be good to kick off the new year with a series of charts from government data and other sources that offer a graphical review of 2010 along a series of macro data on the economy, retail spending, and other dimensions..

First up is US GDP, which as the chart below shows actually started to decline in mid-2008, before the financial crash, followed by steep drops throughout the rest of 2008 and 2009, with a significant 6.8% descrease in the Q4 of 2008 and two other really bad quarters on either side of it.

The first three quarters of 2010 all had positive growth, but yet weew very weak numbers by historical recovery standards. US economic growth was 3.7% in Q1 of this year, which was mostly attributable to signficant inventory rebuilding after the steep inventory descreases of 2009. Adjusted GDP growth was a dissappointing 1.7% in Q2, and a mediocre 2.6% in Q3. It appears likely, however, that Q4 numbers will be decent.

Compare that, however, to China's GDP number, also shown below. After several years of double-digit (though declining) economic growth, China's GDP bottomed at about 6% growth in Q3 2009,, as export volumes plunged, but quickly regained momentum in the last half of 2009 and moved back to double digit territory for most of this year, enabling China to pass Japan as the world's second largest economy.

Purchasing Manager's Index was Strong

The monthly Purchasing Manager's Index (PMI) from the Institute for Supply Management was strong and positive for all of 2010. The PMI represents a view of manufacturing actvity in the US and the measure bottomed out in late 2008, at a number not seen since the Great Depression at 32%. While the PMI began a long rise after that, it did not reach the critical 50 threshold, indicating manufacturing expansion, until the second half of 2009.

2010 showed strong PMI numbers all year, and the 56.6 metric for November marked the 16th consecutive month the PMI was above 50 in the US, though the rate of growth has dropped since earlier in the year. Update: The December PMI continued the streak, coming in at a strong 57 reading for the month, indicating accelerating growth.

Source: Institute for Supply Management

But despite this good news, businesses remained very conservative in building inventories. As shown in the chart below, US companies viciously pared inventories in 2009, after the overall inventory to sales ratio had ballooned earlier in the year due to the rapid drop in sales.

Though overall inventories rose a bit early in 2010, resulting from a short spurt of inventory build after the dramatic draw down of 2009 (a move that was key to the 3.7% first quarter GDP growth), companies went conservative again for most of the rest of the year, though with a positive if mild upward trend as we ended 2010.

Source: Department of Commerce/Supply Chain Digest

Factory utilization in the US continued its slow ascent from numbers again not seen since the Great Depression. As shown in the chart below, factory utilization hit bottom in June of 2009, at just 65%, and has risen steadily since, to almost 73% in November (though the rate of growth was very slow in 2010).

Trends Story Continues Below

CATEGORY SPONSOR: SOFTEON

However, that is still well below the average utilization of 80.6% in the period of 1972-2009, according to the Federal Reserve, meaning there is still much slack in the manufacturing economy and keeping downward pressure on prices despite rising input costs. This is partly because not that much manufacturing capacity has really been lost in the downturn, decreasing just .3% in the last year despite the over capacity that clearly exists in most manufacturing sectors.

Source: Federal Reserve/Supply Chain Digest

Retail Sales were Strong

All told, retail sales in the US were very strong in 2010. As shown in the chart below, retail sales (excluding autos and auto parts) were up at least 5% over 2009 levels each month, with several months seeing 8% year over year growth.

While the official numbers aren't in, most estimates say the holiday shopoing season was strong, likely up some 5.5% over 2009.

Source: Department of Commerce/Supply Chain Digest

However, the overall tepid feeling of the recovery in the US, debt and currency crises in Europe for most of the year, worries about a "double dip" recession and other concerns led companies to hoard cash in 2010 - they simply weren't spending.

As shown in the chart below, cash as a percent of corporate assets soared in 2010, and at almost 7.5% recently reaching a level not seen since 1959. That lack of business spending despite high cash levels is of course one of the key factors in the lack of job growth that has kept unemployment rates high.

Source: Wall Street Journal

Finally, all of this meant somewhat predictable results for the trucking sector. From the extreme lows of 2009, when freight volumes reached levels now seen since 2000, the trucking sector recovered somewhat in 2009, but then mostly flat lined for most of 2010. This has left volumes still well below the levels seen in 2005-2008, though strong discipline in terms of assets increases is moving the supply-demand balance more in favor of carriers, with increasing concerns about capacity in the truck load sector.

That's our graphical review of the macro economic numbers impacting the supply chain in 2010. We'll highlight the top stories of the year in editor Dan Gilmore's First Thoughts column later this week.

Any reaction to our statistical reviedw of 2010? Any other numbers you would like to see? Let us know your thoughts at the Feedback button below.

Recent Feedback

No Feedback on this article yet