–Lack Of Finished Inventory Indicates Demand Is Being Deferred

By Mark Pender

New York (MNI) – April’s inventory index of 49.4 is a strong
reading pointing to a significant build underway in the U.S.
manufacturing sector, Norbert Ore, survey head for the Institute For
Supply Management, told Market News International in an interview
Monday.

For the inventories index, break-even is not the 50 level
associated with the survey’s diffusion methodology but is instead much
lower, at 42.6 as determined by the Bureau of Economic Analysis.

By this measure inventories have been building for five straight
months. Ore stresses that inventories, at 49.4 in April and 55.3 in
March, have been especially building the last two months, whether by the
BEA’s assessment or even by the diffusion assessment in which 49.4
essentially shows no significant monthly change: “Inventories by this
reading held at March’s level.”

I should be noted the March build was the strongest since the
mid-80s with April’s level second only to March in this inventory
correction.

Ore said the accelerating rate of production, at 66.9 in April for
the strongest reading in more than six years, points to the necessity of
inventory build.

He points further to the customer inventory index as an indication
that the build may accelerate. Customer inventories, at 33.0 in April,
is extremely low, a reading second only in the books to January’s 32.0.
This index is a measure of finished goods in inventory.

Ore believes manufacturers continue to hold back on their stocks
which he said suggests demand is being deferred and which points to
“more potential later on.”

He said manufacturers are still interrupting what in a recovery
should be routine replenishment from their suppliers. “You call them up
and say, ‘Don’t you need ten?’ And they say, ‘Yes, but I’ll only take
six because I don’t want my inventories to be too high.'”

Ore said inventory imbalance is especially pronounced in the
electronics sector where he reports anecdotal warnings of short supply
for electronic parts, the result he said of excessive destocking during
the downturn.

Overall, Ore continues to keep a conservative view of the
manufacturing sector. He warns that the sector cannot maintain its rate
of acceleration without the consumer’s help.

He also warns that ongoing strength in the dollar, tied to
sovereign-risk in Europe, is going to hurt exports, and he even suspects
that the export index, at 61.0 in April, is likely to slow in May.

** Market News International New York Newsroom 212-669-6430 **

[TOPICS: MT$$$$,M$U$$$,M$UEQ$,MAUDS$,MX$$$$]