Slack Attack: Purchasing in a Down Economy

From a recent WSJ article some amazing statistics about “slack” in the economy.  Thousands of airplanes and hundreds of thousands of train cars sit unused, hotels report their highest vacancy rates in at least two decades, and millions of Americans are underemployed.

“Hotel occupancy rates were 56% on average this year through July, according to Smith Travel Research, the lowest since the firm started keeping records in 1987. Analysts at Credit Suisse estimate 2,535 Boeing and Airbus aircraft world-wide were in storage in July -- 14.2% of the world's fleet of these planes, a percentage that rivals the months after Sept. 11, 2001.

The Association of American Railroads counts 501,472 freight cars stuck in storage at the beginning of September, roughly one-third of the nation's total fleet. In housing, 18.7 million homes were vacant in the second quarter, up from 15.9 million four years ago, according to the Census Bureau. Vacancies in shopping malls and office buildings also are up.”

With demand for many products down 20 to 50%, many supplier have slack capacity. Of significant concern is if suppliers “scuttle” capacity. When demand returns, supplies will tighten and inflation will run rampant. No doubt, buyers need to be aware of these supply risks and make the necessary contingency plans.