Tuesday, July 14, 2009

Purchasing's Business Conditions Index spikes in July to near-expansion

After a one-month dip, Purchasing's Business Conditions Index shot up almost six points in July to 48, on a diffusion index where above 50 represents expansion.

Twenty-nine percent of buyers polled this month said their firms have seen an increase in orders in the past month, while another 39% said business was staying level. Similarly, the latest ISM Purchasing Manager's Index (PMI) stands at 44.8 in June, having ticked up two points in the latest reading.

The report shows a demand to increase and factory utilization. A very good thing. With business a little better than expected, some manufacturers continue to raise prices, which is the wrong thing to be doing in this economy.

The second quarter was stronger than expected, but customers are beginning to slow down orders, probably due to the supply chain being replenished and uncertainty of how the economy will settle out going forward. Yet, quotes are finally turning into orders. Cars are finally starting to be produced at GM and Chrysler again.

And buyers are beginning to plan for an increase in orders. Purchasing's 90-Day Buying Plans Index continued up this month to 52.7, a two-point step up from a month ago, when the index made its first move above the expansion threshold in a year. The shorter-term buying plans this month still remain more cautious. Currently transportation is the only spend category above 50 on the list of 30-day buying plans.

*Source Purchasing.com

Larson Notes: Is this the bottom? I am really thinking yes, as more homes are bought and sold durable goods are bought and confidence is created. As we put construction workers to work, on roads, bridges and infrastructure (the best part of the Obama plan) we will see more people working and goods and services moving faster, thus cheaper. I do like what I am hearing and seeing despite being in July.

Howard Larson
Larson & Associates
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Making good businesses great and great businesses even better


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