ISM exec: Inventories not lean enough to support peak season spike

The chairman of the Institute for Supply Management's influential monthly report on manufacturing said Friday that manufacturer and retailer inventory levels are not lean enough to warrant a significant bump in peak order and shipping season activity even if demand accelerates somewhat in the coming weeks.

Bradley J. Holcomb, who chairs the committee responsible for publishing the report, said in an interview with DC Velocity that manufacturers have adopted a "wait-and-see" attitude toward inventories as retailers remain extremely cautious about consumer spending in the holiday season. That degree of caution is not likely to abate any time soon, Holcomb said.

Manufacturers "don't have strong expectations for strong order activity" in the near future, Holcomb said. Producers are forecasting continued economic weakness for at least the next few months, he added.

Holcomb said manufacturers could misread end demand and get "caught short" with low supplier inventories at the worst possible time. But he added that the risks of such a scenario occurring are "very small."

The ISM monthly report calculates inventory levels at the manufacturer and retailer levels. In the August report, manufacturing inventories came in at 52.3 percent, three percentage points above July's reading and an indication of modestly expanding inventories. Inventory levels at the retailer, or "customer," level were reported at 46.5 percent, up from 44.0 percent in July but still considered "too low" based on ISM calculations.

Customer inventories have been below the 50-percent mark for 29 consecutive months and have often been well below the August reading, Holcomb said. While retailer inventories may be picking up, Holcomb cautioned that there isn't "any great pent-up demand that is going to be sprung on manufacturing."

Holcomb said that, in general, manufacturers are showing "great discipline" in synchronizing their supplier inventories to end demand for their products. Manufacturers are in "excellent control" of their inventory levels, a feat made even more impressive by the unusually prolonged nature of the sub-par economic recovery and its impact on traditional ordering activity, he said.

"We are continuing in uncharted territory," he said.