Opinions on the economy range from fears of a double-dip recession to hopes for a return to three to five percent real GDP growth over the next 12 to 18 months.

Though some fear that recent strength is just an inventory build that will subside as quickly as it started, based on economic and company-specific data, we believe that the worst is over for industrial distributors. It appears that the bottom was likely in the fourth quarter of 2001 and we should see more favorable market conditions for many months into the future.

Economic indicators signal that the worst is over. The leading economic indicators bottomed out in September and have improved since then. The Institute for Supply Management's Purchasing Manager's Index fell to its lowest level in October and likewise has rebounded strongly.

The rate of decline in factory orders bottomed out in September, as well, and declines in industrial production hit bottom in November.

Company-specific data also supports the premise that industrial conditions hit bottom in or around the fourth quarter last year.

Fastenal, for example, saw average daily sales growth decline steadily throughout 2001, but growth picked up in December and has improved since then.

Year-to-year declines in average daily sales at Grainger accelerated through December, but the rate of decline moderated in January and February. MSC Industrial saw similar trends, as the rate of decline worsened through December but has progressively improved thus far in 2002.

So assuming that the worst is over, how long should we expect the improving economic situation to last?

Since 1959, when it moved decisively above 50, the ISM's Purchasing Manager's Index has remained above 50 for an average of 27 consecutive months. If the current expansion follows historical trends, we could see an expanding manufacturing economy until May of 2004.

There have also been several recent periods where ISM's PMI remained positive for over 40 months, which would lead to a positive environment through 2005 or longer.