The National Association of Purchasing Managers reported a rise in manufacturing in March, and the Census Bureau reported a strong rise in construction spending in February.
This is not the soft landing many had hoped for. The transition from above average to average economic growth overshot on the downside. Now most distributors have inventories back in balance; most manufacturers will be close to desired inventory levels within a month.
Only scattered markets will have surplus inventories, the most notable being heavy truck manufacturers and communications network system builders.
Both tried to defy economic forces by stocking up for continued above average growth while the economy was clearly in the slowdown phase of the business cycle. And both of them tried to overcome the inevitable sales slowdown or decline by financing marginal customers to keep sales rising strongly. Ultimately, this aggravated their inventory problem. Unfortunately, it also caused bigger than necessary inventory problems for their suppliers.
The NAPM index – which is closely watched by the Federal Reserve Board – rose to 43.1 from 41.9. It was 49.6 last September and needs to get back to about 50 to assure average economic growth of 3.5-4 percent.
Construction spending increased for the fourth month in a row. Spending gained 0.6% in February. Since last July when the Federal Reserve board stopped raising credit costs to fight inflation, construction has expanded at an 8 percent annual rate. It fell at a 20 percent pace while interest rates were being raised early last year.
The next reliable monitors of short term economic activity will be the employment report for March due this Friday, the industrial production index on the 17th and manufacturing orders on the 25th. For the fragile economic upturn to continue, we need 50,000 or more new jobs reported on Friday, then an end to the long slide in industrial production and an increase in manufacturing orders.
If all of this happens, start planning for renewed growth in freight volume but also a turn to rising interest rates (very slowly) and enough demand pressure to reverse the recent decline in diesel prices.