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Issue Date: Vol. 43, No. 12, December 2003, Posted On: 12/15/2003


U.S. Economic Recovery Heralds Industry Growth In Year Ahead


Tim Sanford
Editor@vendingtimes.net

U.S.A. - There is increasing agreement that the United States economy is recovering strongly from the downturn of the past three years. This gives the vending and office refreshment industries reason to anticipate stronger demand and more robust sales in 2004.

The Conference Board, which has been tracking U.S. economic performance for more than 80 years, reported that all four indicators comprising its "coincident index" increased in October. Among positive contributors to the index, gains in the number of employees on nonagricultural payrolls, industrial production and manufacturing and trade sales are of particular interest to the workplace service industries. Six of 10 "leading indicators" also were positive last month, including a decline in initial claims for unemployment insurance. And five of seven components of the "lagging index" advanced, including a decrease in the average duration of unemployment.

The Institute for Supply Management (formerly the National Association of Purchasing Managers), whose studies of the U.S. economy also date back to the second decade of the 20th century, reported that October was the seventh consecutive month of increased nonmanufacturing business activity, while manufacturing business activity increased for the fourth consecutive month.

ISM also reported that November was the strongest month for the U.S. manufacturing sector since December 1983. The employment index rose above 50%, indicating growth, following 37 consecutive months of decline.

International economic analysts also are bullish about the U.S. economy. The Organization for Economic Cooperation and Development reported that its Composite Leading Indicators (CLI) for the United States increased by a strong 2.6 points in October, and its six-month rate of change also was up for the sixth consecutive month. This followed 11 straight months of declines.

Long-time industry observer Alan Suitor, president of Automatic Products international, ltd. and a past-chairman of the National Automatic Merchandising Association, observed that the slump really began in 1999, with the collapse of the Internet bubble, and has been international in scope.

"Our business still is very slow," he reported. The momentum of the 1990s boom kept new equipment sales high through 2000. As the pace of business activity slowed, operators found that they had enough equipment on hand to meet market needs, and their purchases slowed dramatically. This equipment backlog will see them through the initial phase of the recovery, delaying the comeback of the manufacturing sector.

The global demand for vending equipment, which had been strengthening throughout most of the 1990s, also contracted sharply over the past three years, Suitor added. The vending industry in the euro zone of the European Union, in particular, had to devote the lion's share of its resources to pricing system conversions, from the old national currencies to the new supranational euro, at the end of 2001 and the beginning of 2002. The conversion went well, but it has taken time to recover the cost. And, until recently, the strength of the U.S. dollar created real difficulties for exporters.

Suitor, who was honored at this year's NAMA National Expo as Industry Person of the Year, added that the upwsing in operating company consolidations over the past decade also has had the effect of temporarily reducing demand for new equipment. He entered the industry in 1966, at a time when a wave of intense merger activity was winding down, and observed that these come in cycles. But it takes a while for demand to spring back, after obsolescing equipment made redundant by a merger is discarded.

On the bright side, he pointed out, the Canadian economy has turned up as the U.S. economy strengthens. Since Canada is our major trading partner, this bodes well for both countries in the year ahead.

OECD figures bear this out, with composite leading indicators for Canada increasing 1.6 points in October. Its six-month rate of change also was up in October for the sixth consecutive month, following a downward trend that had been inforce since May, 2002. Suitor, a Canadian by birth who got his start in the retail bakery industry, recalls a time when the U.S. and Canadian dollars were approximately equal in value. The great disparity that has existed for the last quarter-century or so has been lessening in recent years. At present, the Canadian dollar has climbed to 77˘ U.S., a five-year high and an indication of a solid economy.

Western Europe also is showing new strength. According to the OECD, with France's CLI increased 0.9 of a point and its six-month rate of change rose for the seventh straight month. Germany's CLI rose 1.6 points in October, and its six-month rate of change also has shown increases over the past six months, following 11 months of declines.

The International Monetary Fund likewise projects renewed economic growth in 2004, anticipating the growth rate in the euro zone to rise to 1.9% next year from 0.5% in 2003, and foreseeing a tentative recovery in Latin America driven by increased exports.

IMF also forecasts strong growth in Asia. Overall, the Fund predicted world trade volume, including both goods and services, to grow at 5.5% in 2004, compared with 2.9% this year.

As VT goes to press, the U.S. Department of Commerce has issued a preliminary report on manufacturers' shipments, inventories and orders through October, 2004. In summary, new orders for manufactured goods increased $7.3 billion, or 2.2%, to a total of $341.2 billion. This followed an increase of 1.4% in September.  Year-to-date, new orders for 2003 were 3.1% above the comparable period in 2002.

The recovery appears to be at hand, and 2004 seems likely to present new opportunities as the away-from-home market resumes its growth.

Topic: Vending Features

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