Sunday, February 7, 2010

If You Build It He (or consumers) Will Come...Let's Hope So...

Manufacturing activity is on the increase and provides a preliminary indication that the world's economies are on the mend.  Businesses all along the supply chain are restocking shelves and warehouses after drawing down inventories during the past year.  Even though retail purchasing has not recovered and still seems uncertain at this point, manufacturers, wholesalers, and retailers have to re-stock at least to minimun levels of inventories to avoid shortages.  This is postive because if businesses are caught with low inventory levels then shortages may emerge and the only way to "clear the markets" would be to raise prices, and no one wants that to happen.  Unexpected inflation would damage the recovery, because as we know, wages generally lag behind inflation---Rising prices + stagnant wages = reduced purchasing power---hence we will quickly be back where we started. Hang on, the recovery ride is going to be a wild one...
SURVEYS of purchasing managers indicate that manufacturing industries in most of the world’s big economies are growing. In big emerging economies such as Brazil, China and India, the indices compiled by Markit, a provider of financial information, were well above 50 in January, indicating robust growth. In each of those countries manufacturing was still shrinking in January 2009. There has also been a pronounced turnaround in America, where the Institute for Supply Management’s index for January was 58.4, in contrast to 35.5 in January 2009. Manufacturing is also expanding in Germany, France and Britain. But it is still shrinking in Greece and Spain, though much less markedly than a year earlier.
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