The Institute for Supply Management (ISM) report released today bodes well for economic growth in the months ahead, but it may also hold bad news for frugal shoppers. Not only did manfacturing increase at a healthy rate for the 10th consecutive month in May, it did so expansively. According to Norbert J. Ore of the Institute for Supply Management, the manufacturing increase “continues to broaden as 16 of 18 industries report growth.” Orr adds that some industries, including tech, are reporting shortages of components (yikes!), the result of excessive inventory de-stocking during the downturn.
Warehouses bursting at the seams with unsold goods were the mark of the recent recession but increasingly the table are turning. For a peek at where this is going (Hint: those 50% OFF sales may soon be but a wistful memory,) here’s some trend analysis from David Bianco, chief investment strategist at Merrill Lynch.
Inventories remain very lean and capital expenditures are still in a catch up phase. Although sales troughed in 1Q09, firms continued to draw upon inventories until September 2009. Since then firms have added to inventories only slightly and at a lower rate than sales. From Sep’09 to Mar’10 combined manufacturing, retail and wholesale inventories increased by 1.7% while sales increased by 8%. The inventory to sale ratio declined further from 1.31 in September to an all time low of 1.23 in March. Based upon S&P 500 non-financial company reports, most sectors have consistently improved their sales to inventory ratios. Thin inventories limit the risk of destocking and/or sharp price discounting even if sales growth slows.
So what are you seeing out there? More deep sales or firmer pricing?