By Mark Pender

NEW YORK (MNI) – Substantial slack in workforce hours and an
abundance of idle equipment point to an orderly inventory build for the
U.S. manufacturing sector, according to Norbert Ore, head of the
Institute For Supply Management’s manufacturing report.

The ISM’s inventory index literally soared in March, up 8 points to
a 55.3 level that was last seen in another inventory era, the mid-80s
when just-in-time inventory management began to appear, Ore said in an
interview with Market News International.

But Ore is confident that shortages and panic buying are not in the
offing. Citing first-hand examples, he notes that major manufacturers
have been holding back the workweek which now gives them the ability to
smoothly increase hours and smoothly ramp up production.

Despite this cycle’s deep inventory draw, he believes goods remain
abundant and he points to examples of substantial remaining slack in
transportation & warehousing.

“If manufacturing was running at 85% of capacity, I would be
worried. But we’re substantially below that. I think the inventory jump
will be a short-term phenomenon. I would be shocked if the inventory
index remains in the mid-50s,” Ore said.

Ore sees the customer inventories index, which measures purchasers’
assessment of inventory at other firms, gradually rising back toward a
neutral 50 level. This index, at 39.0 in March, first fell to a 30
handle back in August, a record low which offered an early hint that the
draw was too severe.

“Manufacturers over managed the heck out of inventories. Reduction
was much greater than we’ve seen before. But it’s a question of
forecasting. Nobody forecast the depth of the economic downturn and now
nobody forecast the degree of the upturn.”

Delivery times at 64.9 were last this slow back in 2004, a time Ore
stresses when global demand was robust and which contrasts with the
moderate level of global demand right now. He sees times decreasing in
an orderly fashion in the months ahead as transportation & warehousing
is beefed back up.

“We’re into eight months of recovery off of a very low floor for
manufacturing. We have a lot of capacity to fill.”

Ore sees no significant risk that prices will be bid up because of
delivery delays or inventory shortages: “You get on the phone with your
supplier and they say we’ll have to you in 10 days instead of 7 days.
That’s what we’re talking about.”

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

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