Goulds Water Technology (GWT) announced its Q2...
Stabilization in the quarterly Manufacturers Alliance/MAPI Survey on the Business Outlook may offer some signs of a turnaround in 2002 for the beleaguered manufacturing sector. In June 2001, the index reached a 29-year low of 35 percent, but the December 2001 reading of 40 percent matched that for the September 2001 quarter.
An index below 50 percent indicates that manufacturing activity is expected to decline over the next three months. Given the events of September 11, Manufacturers Alliance/MAPI economist and survey coordinator Donald A. Norman, Ph.D., views as a positive sign that the index did not decline from the September level. While the recovery process may still be slow and painful for many manufacturers, upward trends reported in some key areas of the survey show promise for the new year.
Most encouraging of the responses, and lending credence to the belief that recovery is on the near-term horizon, were rises in orders and shipments indexes. The strongest argument for recovery is in annual orders. The annual orders index rose from 32 percent in the September 2001 survey to 57 percent in the December 2001 survey. This suggests that activity in the manufacturing sector as a whole will increase for all of 2002, reversing the current downward trend in industrial production that started in September 2000.
The shipments index rose from 37 percent in the third quarter of 2001 to 42 percent in the fourth quarter. Because the shipments index is still below the 50 percent level, shipments are expected to decline over the next quarter when compared to the previous year, but the upward trend offers optimism.
Also showing signs of improvement were the indexes for inventories, capital spending and research and development spending. The inventory index fell from 37 to 36 percent, indicating that overall inventories continued to be pared in the manufacturing sector. The investment index rose from 29 percent to 38 percent. The rise in this number suggests that total investment by the manufacturing sector, while still relatively weak, is beginning to recover. The research and development index rebounded from an all-time low of 44 percent in third quarter 2001 to 48 percent in fourth quarter 2001.
Weakness was still prevalent in backlogs, profit margins, and capacity utilization. The backlogs index dropped from 37 percent to 31 percent, while the profit margins index went from 24 percent to 21 percent. As might be expected in a challenging 2001 fourth quarter, 72 percent of the respondents reported lower profit margins compared with only 14 percent who said they enjoyed higher profits. Concerning plant utilization, the percentage of firms operating above 85 percent of capacity was 21.7 percent in December 2001, down from 35.1 percent in the September 2001 survey.
"This quarter's business outlook index indicates continued weakness in manufacturing activity over the next few months," said Norman. "However, several individual indexes that reflect longer term expectations suggest that the manufacturing sector will begin to recover this year."
The survey reflects the views of 56 senior financial executives representing a broad range of manufacturing industries on current and future business conditions. While a variety of questions are included in the survey, the four factors that comprise the business outlook index are a weighted sum of shipments, backlogs, inventories, and profit margins.