The Purchasing Economy Survey

“Welcome to our January report covering December survey
results. According to Supply Managers this economic recovery
is frail and the likelihood of a return to recessionary conditions is
rising.

BAILING OUT FANNIE MAE
FREDDIE MAC & THE FEDERAL DEBT

This past month the U.S. Congress once again opened the national
piggy bank to the biggest of the big financial institutions. On
December 24, the U.S. Treasury announced that it would provide
an unlimited amount of assistance to Fannie Mae and Freddie Mac,
the government supported enterprises that are the largest source of
funds for U.S. home loans. According to the American Enterprise
Institute, taxpayer losses will top $400 billion from this mis-guided
policy http://tiny.cc/EvadC .

Additionally, bailouts such as this raise the national debt, which now exceeds $13.1 trillion, to its highest level relative to the size of the economy, since 1946. Since 1946, the federal debt has grown 15 times faster than the overall economy and now approaches 90 percent of GDP. According to a recently completed study, http://www.kansascity.com/444/story/1675905.html advanced countries spending above the 90 percent thresholdcut their average annual growth by about two percentage pointslower than countries with public debt of less than 30 percent ofGDP. Thus a continuation of the recent trend in bailouts and deficit spending will lower yearly economic growth.

Furthermore, interest rates, including mortgage rates, will rise significantly over the next two years absent federal government spending restraint.
Likewise, the Federal Reserve will have to push short term interest
rates, such as the prime rate, higher to combat higher infl ationary
pressures resulting from out-of-control federal spending. To quote
former First Lady, Nancy Reagan, “Just say no.” Ernie Goss said.

LAST MONTH’S SURVEY RESULTS
SURVEY RESULTS AT A GLANCE

• Business conditions index climbs above growth neutral
  for third straight month.
• Firms added jobs in the region.
• Over 81 percent of supply managers reported that
  current inventory levels were about right.
• Inflation pressures on the rise.

For a third straight month, the overall index for the
Mountain States region, a leading economic indicator for the
three-state area, moved above growth neutral 50.0. The overall
index, or Business Conditions Index, for December climbed to
59.1 from November’s healthy 55.4 and October’s 51.6.

The index is pointing to improving economic conditions for the three-state
region composed of Colorado, Utah and Wyoming in the months
ahead. The December employment index increased to 53.2 from
49.9 in No-vember. While the region has yet to record overall
and signifi cant positive job growth, surveys over the past several
months indicate that the region will begin experiencing increasing
gains in the fi rst quarter of 2010. While the region ended the decade
on a subdued note from a jobs perspective, each of the states outperformedthe nation.

Colorado’s non-farm employment advanced by 86,200 jobs, or 4.0 percent over the decade; Utah added 141,600 total jobs, or 13.4 percent over the last ten years; and Wyoming’s employment expanded by 48,500 jobs, or 20.6 percent over the decade. On the other hand, U.S. employ-ment increased by 758,000 jobs, or 0.6 percent, over the decade. Rebounding prices have accompanied the struggling economy. For the eighth time
in the past nine months, the regional inflation gauge rose above
growth neutral. The inflation gauge, which tracks the cost of raw
materials and supplies, slipped to 54.5 from November’s 57.4.

At its December meeting, the Federal Reserve interest rate setting
committee said it expects inflation to ‘remain subdued for some
time.’ Supply manager surveys over the last several months run
contrary to the Fed’s projection. I expect infl ation at the consumer
level to approach 3.0 percent as early as the middle of 2010.
This is a full percentage point above the Fed’s acceptable level.

MOUNTAIN STATES

COLORADO
For a third straight month, the state’s leading economic indicator
rose above 50.0. The December index, based upon a survey of
supply managers in the state, slid to a healthy 62.8 from 70.3 in
November and 65.5 in October. Components of the overall index
for December were new orders at 64.5, production or sales at 58.9,
delivery lead time at 57.7, inventories at 66.8, and employment
at 66.3. Over the past decade, Colorado lost almost 60,000, or
31.9 percent, of its manufacturing employment. Most losses
were due to productivity growth of more than 80 percent over
the decade. While I expect the state to grow overall jobs by 0.5
percent in the fi rst half of 2010, manufacturing job growth will be
nil as producers continue to grow output via productivity gains.

UTAH
The state’s Business Conditions Index, a leading economic
indicator, once again climbed above growth neutral 50.0. Based
on the monthly survey of the membership of NAPM-Utah (www.
napmutah.org), the overall index stood at 55.0, identical to
November’s 55.0, but higher than October’s 50.9. Components of
the overall index for December were new orders at 64.5, production
or sales at 61.1, delivery lead time at 34.7, inventories at 64.5,
and employment at 50.3. Over the past decade, Utah lost almost
15,000, or 11.6 percent, of its manufacturing employment. Most
losses were due to productivity growth of more than 50 percent
over the decade. While I expect the state to grow overall jobs by
0.1 percent in the fi rst half of 2010, manufacturing job growth will
be nil as producers continue to grow output via productivity gains.

WYOMING
After falling below growth neutral for eleven consecutive months,
the state’s leading economic indicator climbed above 50.0
for the past two months. The Wyoming Business Conditions
Index for December increased to 64.4 from November’s 53.7.
Supported by NAPM-Western Wyoming (http://www.ism.ws/sites/westwyoming/index.htm), surveys over the past several months indicate that the state’s economic prospects will brighten
in the fi rst half of 2010. Components of the overall index for
December were new orders at 50.0, production or sales at 64.4,
delivery lead time at 83.6, inventories at 64.2, and employment at
59.8. Over the past decade, Wyoming lost 1,100, or 10.5 percent,
of its manufac-turing employment. Contrary to Colorado and
Utah, Wyoming lost manufacturing jobs due to relocation and
employment cuts of fi rms in the state rather than productivity
growth. I expect the state to grow overall jobs by 0.2 percent
in the fi rst half of 2010 as manufacturing jobs remain fl at.

THE PURCHASING ECONOMY SURVEY REPORT JANUARY 2010

THE BULLISH NEWS

• Inflation pressures at the wholesale level eased in December
  as a drop in energy prices offset a big jump in food cost
• Oil prices tumbled Wednesday, weighed down by a drop
  in stock prices, a stronger dollar and signs that China’s
  energy needs might not be as robust as predicted earlier.
• All but one of the 19 largest banks have raised the extra
  capital cushion regulators said they’d need to with-stand
  a deeper recession -- a sign of how much the fi nancial
  system has improved since the crisis began.
• U.S. retail sales in November and December 2009 rose
  1.7%, boosted by a post-Christmas surge that made up
  for sales lost from a massive East Coast winter storm.
• Consumer confi dence rose for the second straight month as
  more Americans expect the nation’s economy to improve
  in 2010.
• Mortgage rates declined this week after a month of gains,
  with the average rate on 30-year fi xed-rate mortgages
  retreating closer to 5%, according to Freddie Mac’s weekly
  survey of mortgage rates.
• A key gauge of the manufacturing sector from the Institute
  for Supply Management rose to 55.9 last month from 53.6
  in November. Readings above 50.0 point to growth.
• Precious metal prices received a boost on blowout Chinese
  export data.. Exports rose 18% in December with copper
  imports popping 27%. The news lifted metals across the
  board. Gold for February delivery, the most actively traded
  contract, was surging $15.60 to $1,154.50 an ounce.

THE BEARISH NEWS

• Construction of new homes and apartments fell 4 percent in
  December to a sea-sonally adjusted annual rate of 557,000
  from an upwardly revised 580,000 in No-vember.
• The US economy lost 85,000 jobs in December the same
  day new major layoffs were an-nounced by UPS and
  Lockheed Martin. Job losses in 2009 totaled more than
  4.2 million. More than 15.3 million American workers
  are now offi cially unemployed. Since December 2007,
  upwards of 8 million jobs have been lost.
• The offi cial jobless rate remained at 10% in December, but
  a broader measure of unem-ployment, which takes into
  account those who have fallen out of the workforce or are
  em-ployed part-time involuntarily, increased to 17.3%.
• Oil prices zoomed past $83 per barrel this week. According
  to AAA, oil prices are up 20% over last month. A gallon
  of regular has climbed more than 8 cents in the past week
  nationwide. That made it almost $1 a gallon more than it
  was a year ago.
• U.S. pending home sales index fell 16% in November.

WATCH OUT FOR

• On Jan. 29, the Bureau of Labor Statistics will release GDP
  growth data for QIV, 2009. Annual-ized growth below 1.5%
  will be bearish.
• The January PMI released Feb. 1st. This is the first economic
  indicator released for the month and will very, very, very
  important. A signifi cant drop would be bearish. Another
  increase will be very bullish ( www.outlook-economic.com
  and www.ism.ws ).
• Monthly retail sales for January will be released on
  Feb.11th by U.S. Census Bureau (www.census.gov) . A
  monthly increase of more than 1.0% will be considered
  very healthy.
• First time and continuing claims for unemployment
  insurance. Released every Thursday. First time claims
  below 425,000 will be bullish. (www.dol.gov).

THE OUTLOOK: I expect

FROM GOSS:

• The dollar to trend downward in 2010 but there will be lots
  of ups and downs along the way.
• The U.S. economy will begin adding jobs at a very slow
  pace in the first quarter of 2010.
• Annualized inflation will increase to 3.0% by the middle
  of 2010.

NATIONAL ASSOCIATION OF BUSINESS ECONOMICS
FORECASTS:

• After declaring in October that the Great Recession of 2008-
  2009 was over, the NABE forecast panel is now boosting
  its expectations for growth.
• The household sector is still expected to lag behind the
  overall economy.
• The recovery will not remain “jobless” for long. With
  more than 7.3 million jobs lost since Decem-ber 2007,
  firms will begin adding jobs in the fi rst half of 2010.
• The nascent housing recovery will be uninterrupted and
  will gather momentum.

OTHER FORECASTS:

• Futures on the Chicago Board of Trade show a 32 percent
  chance the U.S. central bank will raise its target rate for
  overnight bank loans by at least a quarter-percentage point
  by June, down from 51 percent odds a week earlier.
• Carl Lantz, fi xed-income strategist at Credit Suisse in
  New York Longer-term Treasury yields should continue
  to push up through the fi rst quarter to as high as 4% to
  4.25% on infl ation worries and on fears about how the
  market will respond once the Fed ceases buying mortgage
  securities.
• Herman Van Rompuy, the European Union’s fi rst full-time
  president, warned of a bleak economic outlook marked
  by industrial decay in the wake of the deepest recession
  since the Great Depression.

SUPPLY MANAGER JOBS AVAILABLE
Buyer: Test Equipment/Computing. Raytheon, Garland,
Texas. Source and acquire material in support of DoD & Government
Contracts and Capital requirements. Have overall responsibility
for procurement and supplier management. Specifi c duties
include: RFQ generation, quote / proposal analysis, negotiations,
documentation, PO generation and supplier follow-up. Work
extensively with internal teams consisting of, but not limited to,
Engineering, Quality, Operations and Program personnel along
with other key func-tional groups to ensure on-time delivery of
compliant product at or below program budget. Job Descrip-tion:
Required Skills:* Minimum of 2 years of Supply Chain experience.
* Ability to multi-task with minimum or no supervision. * Excellent
verbal and written communication skills. * MS Offi ce (Word, Excel,
PowerPoint). Desired Skills: -Experience with SAP. -Excellent
problem solving skills. -Ability to multi-task with minimum or no
supervision. -Experience with Government procurement/material
acquisi-tion. -Material procurement experience - Experience with
$500,000 subcontract negotiations and asso-ciated procurement
documentation -Experience with Six Sigma and productivity
improvement. Required Education: * Bachelor degree in Supply
Chain, Business, or technical related fi eld.

To apply for this position,
https://raytheon.rayjobs.com/frameset.html?goto=er-view-job&er
job=658248&eresc=Institute%20for%20Supply%20Management
%20%2Dwww%2Eism%2Ews

SUPPLY MANAGERS READING ROOM
PMI

“Federal Contracting for Food and Refreshments,” Public
Manager 37, no. 1 (Spring 2008): p. 72-76. Contracting
professionals must ensure that the federal government receives
the best value for the taxpayer dollar while following acquisition
regulations during procurement and contract management.

This article reflects on the legal regimen of the procurement
of food and beverages, with emphasis on conferences. It also
discusses the state of the meeting industry and how this can
infl uence rates, as well as negotiation techniques to ensure fair
and reasonable pricing.

The Federal Travel Regulation defines light refreshments as coffee, tea, milk, juice, soft drinks, donuts,
bagels, fruit, pretzels, cookies, chips, and muffims. Under the
Government Employees Training Act, agencies are authorized to
pay necessary expenses for training -- def ned as directly related
to the performance of official duties for the government. This
article encourages young procurement professionals to be vigilant
regarding contracts that include the purchase of food and light
refreshments with hotels and resorts for the use of conferences.

ASK ERNIE
If you have any questions about the survey or have any specifi c
questions about the recent economic conditions, please write to
Ernie at ernieg@creighton.edu.