After late last year's sluggish economy, the latest Federal Reserve compilation of regional economic reports indicates that the economy accelerated in 2006's first quarter. Although growth has been reported as "moderate" and "unspectacular," business investment currently is expanding at nearly a double-digit pace for a wide array of goods, prompting smiles on the faces of many buyers, who last month reported stronger business conditions, larger orders and expanding purchasing needs.

Nationwide consumer spending and business spending continued to expand at healthy rates, generally powering the overall economic expansion wherein January and February saw a more active economy, according to the Fed Reserve's periodic "Beige Book" and reported by Purchasing magazine.

Due to strong demand, businesses widespread across industries are seeing increased purchasing and product manufacturing for factory goods/raw materials. The sectors frequently mentioned as facing strong demand include construction materials, electrical equipment, defense products, tractor trailers, heavy trucks and heavy machinery.

Purchasing magazine quoted Pat Livesey, director of materials at Alfa Wassermann, a maker of bench-top clinical chemistry analyzers, as optimistic: "Business has remained steady in the first quarter of 2006. The forecast remains steady through June, followed by an expected summer slowdown before we resume a big push through fourth quarter."

Expenditures for most business services continued to rise. Several Districts noted strong revenue gains for insurance, accounting, telecommunications and healthcare firms. Boston said that information technology services firms reported strong revenue growth and expectations for steady or faster growth in the next six months.

As well, steel production has perked up and steel shipments have increased, though demand conditions in nonferrous metals industries remain erratic.

For buyers, commodity prices are a problem, as they have continued to increase. For example, corrugated packaging buyers are concerned about higher prices early this year due to supplier consolidations and the closing of paper mills.

Further, fuel surcharges remain an issue for transportation buyers in particular, as both rail and truck transportation continue to be costly and difficult to attain. But Cleveland, Atlanta, Chicago and Dallas all noted a robust demand to trucking and rail shipping services.

Meanwhile, gasoline prices have remained high. With crude oil prices at record highs, many petrochemical buyers stocked up during the fourth quarter and early 2006, on the assumption that oil would keep on rising, says Purchasing. This has pushed the petrochemical prices to even higher levels. But slightly lower crude oil prices and higher U.S. petrochemical inventories have begun to pressure prices downward for chemicals and resins.

While some prices still are increasing, the energy — primarily natural gas — impact is softening, which has helped slow the inflation that had caused the prices of chemicals and plastics to explode earlier.

Most regions did have some weak-performing industries, though few were consistently mentioned as underperforming. Several Districts commented on the ongoing struggles of the domestic nameplates in the auto industry.

According to the Federal Reserve Board:

An automaker in the Chicago region reported that slowing sales and high inventories would likely restrain production in the coming months, and automakers in Cleveland noted large declines in output compared to year-ago levels. Atlanta mentioned that many suppliers to the domestic nameplates have seen slower demand, and Kansas City added that a number of partsmakers had ceased production. Dallas noted that a narrowing spread between refined fuel and crude prices led some refineries to briefly reduce production in February. Some refineries in the Gulf Coast region reportedly will have longer maintenance turnaround times this spring because repairs were postponed in the aftermath of the hurricanes last fall.

In general, however, most reports indicated that business has remained steady in the first quarter of 2006, while capital spending increased at a similar pace as in the previous reporting period.

Sources

Buyers, economists agree: Signs of better business abound
by Tom Stundza
Purchasing magazine, April 6, 2006

Summary of Commentary on Current Economic Conditions
by Federal Reserve District, March 15, 2006

Reference

Steady, unspectacular growth in place, Fed finds
by Greg Robb
MarketWatch, March 15, 2006

Additional

Spend Matters blog

Procurement Central blog

E-Sourcing Forum blog