Last week, manufacturing and production indices in many parts of the globe again turned positive, spawning many in the financial media as well as Wall Street to declare that the recession is over.  Let the recovery begin!

I’m not inclined to pop those champagne bottles just yet, and I’ll explain why.

The October 2009 ISM Report on Business noted that the U.S. manufacturing sector expanded for the third consecutive month, and the overall economy grew for the sixth consecutive month.  As I have pointed out repeatedly in this column, you really have to dig deeper into these numbers.  Consider that the New Orders Index registered 2.3 percentage points lower and the inventories index was 4.4 points higher than readings in September.  Prices were also slightly higher.  All of these indices still reflect signs of caution in my eyes.  I’m in the camp that questions whether the current U.S. economic stimulus programs, the after effects of the “cash for clunkers program”, and the inertia of the past inventory recovery program are really what drove these numbers. I’ve also noted in past postings that the ongoing trend of higher inbound material prices seems to be ungrounded to supply and demand forces, reflecting more on the need for certain suppliers to maintain some form of profitability through inflated pricing.

 In other global regions, The China Federation of Logistics and Purchasing PMI index grew to 55.2% in October, the eight consecutive month that reading was above 50.   The production index at 59.3 was the highest level since May, and China’s new export index was up 1.2 percentage points.  While the indices are indeed positive, the government of China has had massive stimulus programs in place to spawn more consumer buying, and to accelerate investment in newer product growth areas such as green and alternative energy markets.

A lot has been written regarding “the new normal” , and what really constitutes a global economic recovery.  If you have been scanning corporate earnings reports from the past few quarters, companies that have maintained levels of profitability have done so based on expense reduction rather than sales growth.  To get a deep understanding of what the “new normal’ might really be, I recommend you read the October 3, 2009 edition of The Economist magazine, specifically the article titled: A dull, heavy calm. The Economist argues that while the world economy has stopped falling, recovery will be measured.  To further paraphrase, the world economy will bounce back in the next few quarters, and consumers may resume spending, albeit somewhat modestly. Companies that depleted their inventories will restock, but remember the overall depressed starting point.  More specifically, U.S. consumers are not in any position to currently lead a sustained recovery, and U.S. companies will continue to turn to exports as a means to ignite growth.  The question raised is whether Asian consumers are really ready to be the customers for those exports?

My advice to value-chain executives is to continue to be cautious, and don’t over react to the current euphoria in financial markets.  Now may be the time to prepare for recovery, but my consul is to invest in process capabilities that focus on broad market intelligence, more resilient supplier sourcing, deeper product demand sensing and business intelligence capabilities. 

While the bottom has been reached, the road to recovery looks to be uncharted waters, and previous business planning methods grounded in what happened in the past, are not going to cut-it for charting the path to growth in the “new normal”.

Bob Ferrari