Taking Orders
To set the stage for recovery, manufacturers need to reduce existing inventories and then wait for an increase in new orders. When inventories are low, new orders will trigger production because they cannot be filled from items in stock. Several surveys, including durable goods orders and the Institute for Supply Management’s manufacturing index, indicate that the sector is approaching this tipping point.
Although the recovery, when it comes, is expected to be slow, one school of thought holds that job growth will be stronger than commonly believed, and for much the same reason that the manufacturing sector is positioning itself for recovery. When the credit markets froze last September, companies became panicked about their short-term liquidity and began slashing payrolls in order to conserve cash. Staffing is now so low, the theory goes, that it may not take much of an increase in order flow for companies to begin hiring again. This is a minority opinion among economists, but it is not out of the realm of possibility.
Robert Bach
SVP, Chief Economist
Grubb & Ellis