Executives can find some additional positive news for the hard-hit manufacturing sector with today's release of the quarterly Manufacturers Alliance/MAPI Survey on the Business Outlook. With the index reaching 52 percent, it is at the highest in 18 months, since it stood at 58 percent in September 2000. Shortly thereafter the index plummeted, reaching a 29-year low of 34 percent in March 2001.
Consecutive quarters of 40 percent in the last two surveys showed some stabilization but fell far below real improvement. Today's release provides solid evidence for growth in manufacturing. An index above 50 percent indicates that manufacturing activity is expected to increase over the next three months. A number of individual indexes showed improvement over the last quarter. The annual orders index, which measures how orders for all of 2002 are expected to compare to those in 2001, rose from 57 percent in the December survey to 62 percent in March. The shipments index, which measures how prospective shipments in the second quarter of 2002 are expected to compare with those of the same quarter one year ago, rose from 42 percent in December to 53 percent in March.
The profit margin index jumped from 21 percent to 39 percent in March. Although low by historical standards, the increase points to significant improvement. The backlogs index rose slightly from 31 percent to 34 percent, while the inventory index declined to just 20 percent in March, down from its previous reading of 36 percent. The decline in the inventory index indicates that manufacturers continued to reduce inventories in the first quarter of 2002. However, there were some cautionary signs indicating that near-term recovery, while solid, may not be uniformly strong.
The percentage of firms operating above 85 percent of capacity in March was just 19.4 percent, down slightly from 21.7 percent in December. The investment index, which measures prospective capital spending plans for 2002, dropped from 38 percent in December to 32 percent in March. This downward trend indicates that companies plan to scale back capital spending this year. U.S. manufacturing is especially strong in capital goods, the basis for much of investment spending. "This quarter's survey provides solid evidence that the manufacturing sector is starting to rebound," said Donald A. Norman, Ph.D., Manufacturers Alliance/MAPI economist and survey coordinator. "However, the investment index indicates that although a rebound is under way, it has yet to take off."
The survey reflects the views of 57 senior financial executives representing a broad range of manufacturing industries on current and future business conditions. While a variety of indexes are included in the survey, the business outlook index is a weighted sum of shipments, backlogs, inventories, and profit margin indexes.