Analysis Shows Business Improvement in 2002

Dec. 4, 2002

Gains early in the third quarter allowed the manufacturing sector to offset a late quarter stumble and post positive results overall, according to the author of the quarterly Manufacturers Alliance/MAPI Analysis of Selected Industrial Indicators (ER-544e), a report that analyzes 28 major industries. Deflation, however, continues to undermine more rapid growth in manufacturing.

Third-quarter 2002 figures show that 16 of the 28 industries tracked in the report had inflation-adjusted new orders or production above the level of one year ago. That is double the eight industries that experienced positive growth in the first quarter and slightly above the 13 industries that showed improvement in second-quarter 2002.

According to Daniel J. Meckstroth, Manufacturers Alliance/MAPI chief economist and author of the analysis, more industries have passed through the worst part of the economic cycle.

Meckstroth cautioned, however, that the third quarter gains were "front-loaded" and early indications point to a disappointing fourth quarter.

"Capital goods industries remain depressed and consumer durable industries have carried this recovery about as long as they can," he said. "The outlook is for little, if any, growth in the manufacturing sector in fourth-quarter 2002. We are, however, hopeful that the recent interest rate reduction will get the manufacturing recovery back on track in early 2003."

The report also discusses the threat of deflation to the economy. The author shows that it already affects manufacturing in a negative way. Therecent recession in the United States, an ongoing recession in LatinAmerica, continued weakness in Japan, and little growth in Western Europe leaves the world awash in excess capacity. Producers in Europe and low-cost countries around the globe are looking for foreign markets to unload their products.

"Essentially, there is a global excess supply of manufactured goods facing very sluggish world demand," Meckstroth writes. "The interaction of excess supply and relatively weak demand is a price-depressing combination."

The Manufacturers Alliance/MAPI is a policy research organization with approximately 450 member companies including leading producers in heavy industry, automotive, electronics, precision instruments, telecommunications, computers, chemicals, oil and gas, aerospace, and other high-technology industries.

Source: The Manufacturers Alliance/MAPI

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