Surveyed manufacturers are optimistic that the recession is finally turning to recovery according to the quarterly Manufacturers Alliance/MAPI Survey on the Business Outlook - March 2010. The March composite index rose to 78%, up from 57% in the December 2009 report, putting it at the highest level since June 2004 (when it hit 80%). This is the second straight quarter the index reached 50% or above. A year ago the March 2009 index registered a historic low 21%.
“The sharp increase in the composite index, along with significant improvement in individual indexes, point to increased confidence that the manufacturing sector will continue to recover from the rapid decline that took hold in the fourth quarter of 2008 and continued through the first half of 2009,” said Donald A. Norman, Ph.D., MAPI economist and survey coordinator.
“It is important to recognize, however, that many of the individual indexes are based on year-over-year comparisons and the composite index measures the direction of change rather than the absolute strength of activity in manufacturing," Norman noted. "Still, the extent of the increases clearly points to further expansion.”
While a variety of individual indexes are included in the survey, the business outlook index is a weighted sum of U.S. shipments, backlogs, inventories, and profit margin indexes. All 12 individual indexes showed improvement and eight showed double-digit growth.
• The quarterly orders index, based on forecasts for the first quarter of 2010 with the same quarter one year ago, rose to 85% from 42% in the previous survey.
• The profit margin index increased to 74% in March, up from 38% in the December report.
• The U.S. prospective shipments index, which reflects expectations for second quarter 2010 shipments compared with the second quarter of 2009, improved to 88% in the March survey compared to 59% in the December report.
• The backlog orders index, comparing the first quarter 2010 backlog of orders with the backlog of orders a year earlier, rose to 63% from 36% in the December survey. An accumulation of backlogs usually occurs when new orders exceed shipments and thus indicates growing strength in manufacturing.
• The export orders index, which compares first quarter 2010 exports with those of first quarter 2009, increased to 76% in March from 47% in the December survey.
• The non-U.S. prospective shipments index, which measures expectations for shipments abroad by foreign affiliates of U.S. firms in the second quarter of 2010 compared to the same quarter of 2009, jumped to 80% from 64%.
• The inventory index is based on a comparison of inventory levels in the first quarter of 2010 with those of a year prior; it was up to 23% in March from a near-record low of 8% in December. The increase in this index suggests that inventory destocking may be coming to an end.
• The annual orders index, based on a comparison of expected orders for all of 2010 with orders in 2009, was at 94% in March compared to 80% in December.
• The research and development index reflects the insights of participants regarding R&D spending in 2010 compared to 2009. This index was at 70%, slightly above the 66% recorded in the previous survey.
• The U.S. investment index, based on expectations of executives regarding capital investment in 2010, was 69%, up from 66%, indicating increased domestic investment this year.
• The non-U.S. investment index provides insight into expectations regarding capital expenditures abroad. The March 2010 index was 70%, up slightly over the 68% recorded in December. MAPI said this implies that a significant number of respondent companies anticipate capital spending growth outside the United States.
• The capacity utilization index, based on the percentage of firms operating above 85% of capacity, improved to 9.8% in the current survey from 7% in the previous survey – still far below the long-term average utilization rate of 32%. MAPI noted that that is the lone index showing the manufacturing sector has yet to fully recover from the recession.
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