4th-quarter forecast: 1998 goes out like a lamb

The combined Cost-Variance Index rose a moderate 0.75% for the third quarter of 1998, despite an unusually high number of price changes affecting eleven of 18 commodities. Most of the unexpected third-quarter changes came from manufacturers that traditionally change prices at year's end. Only one of the eleven active commodity groups lost value through the period.

The moderating factor, as it has been all year, remains the value of the Wire, Cord & Cable commodity group. It dipped 1.18% in the third quarter. This is significant because it represents 18.3% of a typical distributor's inventory--the largest commodity group on the index. As of September 30, the year-to-date combined cost variance gained 1.12% from June's 0.36% mark. If we could factor out Wire, Cord & Cable's influence on the CVI value, the index would have gained 2.46% going into the final quarter. Distribution Equipment topped the third quarter leaders, up 3.66%, followed by Lamps, up 3.24%, Industrial Controls, up 1.61%, and Conduit & Raceways, up 1.82%. Combined, these four commodity groups represent 34% of a typical distributor's inventory.

September-to-September annual variance The most significant factor, in the past 12 months, impacting the cost variance position has been the huge Wire, Cord & Cable commodity group. Its 12.05% drop in value represents the only commodity that lost value in the period. Otherwise, 12 other commodity categories posted gains of between 2.41% and 6.65%.

Fourth-quarter activity While there is always price change activity, there is only one major price change announced for the final quarter of 1998. This would primarily impact the industrial controls commodity group. The fourth quarter is shaping up to be relatively quiet in comparison with historic fourth quarter activity. In the past two years we have seen a number of typical fourth quarter manufacturers move their price changes to the first quarter. It remains to be seen if this latest shift to third quarter changes becomes habitual.

Want to use this article? Click here for options!
© 2007 Penton Media, Inc.