thoughtleaders
on the front lines. We try to select
quotes that are indicative of the story
that is in the month’s data.
The trends in the data are the most
important, however. I have found
that the trends tell the ultimate story.
I have learned to trust the trends in
the ISM data. They are quite reliable
and should be one of a number of
data sources decision makers use in
determining their strategies.
QThe September report showed a sizable jump in the prices-paid component, which continues a
months-long upward trend. The
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increase in that component has also coincided with a slowing in supplier deliveries. Will an economic slowdown cause the
pace of deliveries to pick up, and thus lead
to a moderation in prices? Or is there an
inflation threat lurking in our future?
AThe prices-paid component reflects the prices manufacturers pay for
their inputs and is the most volatile of the
indexes. It is a good source of information
on commodity prices. While the index
was higher in September, the number of
commodities up in price needs to be
greater before it would be of concern.
Sellers had significant pricing power during the first half of this year, but with the
slowing in growth, their pricing power
has weakened. The comparison of the
speed of deliveries to prices is quite valid
and one of the indicators that can be used
to determine if deliveries have slowed sufficiently to signal that demand is strong
enough to support higher prices.
With regard to inflation, there are no
signs in the ISM data at this time. Many
believe, however, that inflation is a monetary phenomenon, so while it may not be
an issue in the near term, it may be a challenge in the future.
QOur readers are mostly logisticians. Is there a particular index they should
key on as a harbinger of future activity?
AI would recommend they look at ISM’s New Orders and Customers’
Inventories indexes in particular. The
New Orders Index is considered a leading
indicator and provides excellent insight
into the level of activity that logisticians
might expect in the coming 45 to 90 days
as manufacturers see their order books
rise or fall. The Customers’ Inventories
Index is coincident and indicates the
inventory level at the point of demand.
When customers’ inventories are too high,
it will result in less activity in other links
in the supply chain. Conversely, a reading
that is too low, as we have presently, indicates customers are delaying restocking or
are unable to restock fast enough. ;
Editor’s note: Mr. Ore’s comments refer to
the September ISM report, which was current at the time of the interview. To see the
latest report, go to www.ism.ws/ISMReport.
