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A Macro View: ISM September, Trends Ending, Now What
By: Ron Rutherford   Tuesday, October 11, 2011 10:01 AM
Multiple surveys have shown that lack of demand — a lack that is being exacerbated by government cutbacks — is the overwhelming problem businesses face, with regulation and taxes barely even in the picture.

For example, when McClatchy Newspapers recently canvassed a random selection of small-business owners to find out what was hurting them, not a single one complained about regulation of his or her industry, and few complained much about taxes. And did I mention that profits after taxes, as a share of national income, are at record levels?

Below is a sample of quotes from respondents in the reports. There is no way to know how widespread these feelings are, but it is reasonable to assume that the ISM picked these quotes to capture the general sentiment of their members. The first quote is a damning critique of Krugman's assertions, and it is reiterated by the second quote from the issuer of the manufacturing report.

"The economy continues to be a drag on our business outlook. We are trying to deal with new and additional FDA regulations which are costing significant dollars. It is hard to recoup any of these additional costs in our pricing levels without losing significant sales volumes." (Chemical Products)

Comments from respondents generally reflect concern over the sluggish economy, political and policy uncertainty in Washington, and forecasts of ongoing high unemployment that will continue to put pressure on demand for manufactured products." Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee

"Japan supply chain issues are over, but exchange rates and raw material prices are hurting our profit." (Transportation Equipment)

Respondents' comments reflect an uncertainty about future business conditions and the direction of the economy. Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee

"It appears everyone is waiting to see what happens next. No trust in the economy or the federal government to do what is needed." (Accommodation & Food Services)

"The 2012 outlook is not optimistic; though we keep hoping for a rebound, we see little sign of an improved economy — nothing at least that will spur growth, investment or expansion. Improved investment performance in early 2011 caused us to begin several large capital projects, and although we have broken ground, we cannot help but question if our timing was right." (Educational Services)

"Third and fourth quarters appear to be slowing down in order volumes. Uncertainty over U.S. and European economy is causing clients to hold off on new orders." (Professional, Scientific & Technical Services)

This might be the start of the business communities changing attitudes and concerns. That being said, the government is clearly the hindrance to business expansion and greater investment levels. It is hard to think how the OWS movement will increase business confidence and willingness to take on greater risks through expanded investments.

The positive trend upward for the employment index in the non-manufacturing report has officially been defeated. Not a good sign for the unemployment rate going forward. Even though new orders in that same report showed greater expansion with a rise in the index of 3.7% to a healthy 56.5%, the percentage of respondents stating higher growth in new orders actually fell last month. The index rose because those reporting contraction in new orders fell more. Thus the number of respondents stating that new orders maintained the same level rose to 60% from 50%.

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