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Economics Dept.: Purchasing Managers Index Soars

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The Southeast Michigan Purchasing Managers Index soared to 71.8 in March, a post-recession peak for the economic activity indicator.

The Southeast Michigan PMI has exceeded 50 for 14 consecutive months, signaling a strong economic recovery. An index above 50 indicates economic expansion. The higher the score is above 50, the faster the growth rate.

PMIs are leading indicators, often forecasting what is to come before the economy changes.

“Production, new order activity and employment were up by over 10 points in March, all pointing to a continuation of economic growth,” said Nitin Paranjpe, an economist and supply chain faculty member at Wayne State’s business school who analyzed the survey data.

Employment continues to show strong expansion with a March Index of 70 indicating that the expansion is finally generating a sustained recovery in jobs.

“This bodes well for the Michigan unemployment rate which while stubbornly high, is moving in the right direction to lower levels,” Paranjpe said, adding that Michigan’s unemployment rate is 3.1 percent lower now than at the same time last year.

With the growing economy comes higher prices. The commodity price index remained high at 78.3. The three month average of 76.9 suggests a potentially inflationary environment for raw materials on a global basis.

Survey respondents indicated pricing pressure in petroleum based products, metals, plastics, and resins. Respondents did not report any commodities that were lower in price.

“Raw material commodity price inflation does not seem to be translating into price inflation at the retail level yet,” said Paranjpe, “but the potential is worrisome.”

Looking forward, 86.7 percent of purchasing managers surveyed expect stability or greater stability in the next six months.

The more optimistic survey respondents admit to seeing improvements over the last few months, with one commenter declaring “cautious optimism” that business will be good for the next three to four years.

Concerns relating to less economic stability focused on the ability to acquire new business, the disaster in Japan and unrest in the Middle East, and air transportation services in those areas.

Each month, faculty from the School of Business Administration at Wayne State University and leaders from the Southeast Michigan chapter of the Institute for Supply Management survey metro Detroit’s purchasing managers, examining factors such as production, new orders, inventories of raw materials and finished goods, employment, vendor deliveries and commodity prices.

The complete Southeast Michigan Purchasing Managers Index report for March is available online at
http://www.ism-sem.org/uploaded_pics/pdf-20110330131851.pdf.

The Institute for Supply Management – Southeast Michigan serves its members as an affiliate of the Institute for Supply Management by providing superior opportunities for education, networking, and career enhancement as a means of advancing and promoting the leading edge practices and profession of purchasing and supply management.

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