How can distributors prepare for a coming economic expansion?

Warehouse distribution software is capable of providing a much-needed efficiency boost for distributors who are still holding out for any signs of long-term economic growth. A large number of industries that make up the U.S. economy have struggled in recent years to fully rebound from the Great Recession. The construction and manufacturing sectors took an especially hard hit as an increase in operational costs significantly limited the capacity for transporting raw materials to and from various regional depots around the country.

The latest measure of factory activity in the U.S. suggests businesses in this sector may be in for a brief respite. According to Reuters, the Institute for Supply Management's (ISM) most recent index of national manufacturing activity rose to its highest level since April 2011. Between October and November of this year, the index climbed to 57.3 from 56.4. Reuters said any reading above 50 indicates the industry is in an expansionary phase. Industry experts initially anticipated the November index to hover around 55 points. This latest reading is the sixth-consecutive growth month for goods-producing sector of the U.S. economy.

"The persistent strength in the ISM increases our confidence that business investment in the fourth quarter will bounce back from the contraction in the third quarter, but we remain of the view that this rebound will be limited," Bricklin Dwyer, a U.S. economist at BNP Paribas in New York, told Reuters.

Is the data overblown?
While the ISM index paints a relatively positive outlook for fleet managers in the construction and manufacturing industry, other measures of business activity suggest recent growth has been much more modest. Data points such as factory payroll, orders for durable goods and industrial production rates have indicated slow growth as opposed to expansion.

The American Trucking Associations (ATA) recently hosted a panel discussion titled "All Eyes on the Economy" as part of its ATA Management Conference and Exhibition that focused on informing distributors about what they can expect from current economic conditions. In fact, the online publication Commercial Carrier Journal reported the industry experts involved in the panel warned slow GDP growth may result in an increase in operational costs for many businesses and ultimately reduce profit margins. 

"At the moment, fleets are expanding slowly, which means that once we see more consistent, accelerated economic growth, it will eventually cause very tight capacity," Bob Costello, the chief economist for the ATA, said.

The construction industry remains strong
Nevertheless, a boost in spending for construction projects around the nation has resulted in an uptick in delivery in the overall manufacturing sector. According to Reuters, much of this growth comes from state and local government bodies that are interested in developing new buildings. The Great Recession had a profound impact on the public sector, causing many municipalities to significantly limit their budgets. However, current spending levels on government projects are currently at their highest level since 2009.

"State and local construction spending has now crossed solidly into positive territory in year-on-year terms, consistent with the improvement in state and local revenue trends," Carl Riccadonna, senior U.S. economist at Deutsche Bank Securities in New York, told Reuters.

The construction of warehouses is also on the rise. A recent report from research company IBIS World said many private corporations have become more interested in developing new manufacturing and distribution buildings in anticipation of positive improvements in economic activity.

The need for an early competitive advantage
The initial onset of long-term industry growth is perhaps one of the best times to invest in advanced logistics software programs to streamline distribution operations. As businesses slowly get back on their feet after experiencing the effects of a nationwide economic downturn, managers must rely on a variety of tools to limit overhead costs and make the most of existing resources. Automated services such as warehouse distribution software allow companies to easily organize daily operations from assigning deliveries to scheduling pickups. Eliminating the need to rely exclusively on manual labor can not only save time, but it can also help employees focus on other important tasks essential to long-term success. Fleet managers will benefit from gaining an early edge as the economy produces signals for expansion.