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Leading Indices Show “Buyer’s Market” Conditions

December 4th, 2008 · by Pat Furey · 1 Comment · LCCS and trade, Services Procurement, best practices, sourcing, supplier management, supply management, supply market dynamics

As my colleagues have recently pointed out (here & here), it is definitely a buyer’s market right now. And similar to the broader economic recession, which often takes hindsight analysis of numerical data before they can officially call it a “recession”, buyers often feel the shift in their favor before they can quantify it. But, there is statistical evidence available to back up your hunch that now is a good time to source, negotiate and buy.

We closely follow two indices published monthly by the Institute of Supply Management (ISM), the Production and Manufacturing Index (PMI) and the Non-Manufacturing Index (NMI). These indices indicate overall supply market activity in the Manufacturing and Services sectors of the US economy respectively. An index rating above 50 indicates that the sector is expanding, and an index rating below 50 indicates that a sector is contracting. The chart below tracks both indices movement this year, as well as the Chinese PMI, in order to provide some global perspective.

In October, the NMI hit its lowest point ever at 44.4, and the PMI hit its lowest level since 1982 at 38.9. These numbers clearly indicate that both the manufacturing and services sectors are contracting, and that we are in a recession. To emphasize that this is a global issue, the PMI for China hit a record low of 38.8 in November. For buyers, this means that suppliers in every industry have excess capacity, and they are hungry for business. It is clearly a buyers market.

In light of that fact, we (the category management team behind much of the SupplyWatch report content) are preparing a mid-quarter update to identify categories that provide real savings opportunities right now. You can find much of the analysis here on the blog in next 2 weeks or subscribe to the SupplyWatch enewsletter to get the full report delivered to your inbox.

Pat Furey is a Senior Category Manager in Ariba’s Global Sourcing Organization. Pat leads the team of US based category managers covering direct materials and indirect goods and services.

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