The long-awaited recovery in the manufacturing sector may be clearly in sight, according to Manufacturers Alliance/MAPI. Their December 2009 composite index rose to 57% from 38% reported in the September 2009 report, representing the highest level since the March 2008 survey also registered 57%, and the first time in six quarters it has reached 50% or above.

At its current level, the index indicates that overall manufacturing activity is expected to grow over the next three to six months.

"Since many of the indexes are based on comparisons with activity in the fourth quarter of 2008, during which manufacturing sector activity had taken a sharp downward turn, the improvement in the composite index is not, by itself, evidence of a meaningful recovery," said Donald A. Norman, Ph.D., MAPI Economist and survey coordinator. "The extent to which the individual indexes improved, however, along with the significant increases in the forward looking annual orders and investment indexes, provide the strongest indication to date that the manufacturing sector is on the upswing."

The quarterly orders index, based on forecasts for the fourth quarter of 2009 with the same quarter one year ago, rose to 42% from 11% in the previous survey. The non-U.S. prospective shipments index, which measures expectations for shipments abroad by foreign affiliates of U.S. firms in the first quarter of 2010 compared to the same quarter of 2009, jumped to 64% from 33%.

Highlights from the report:

  • The U.S. prospective shipments index, which similarly reflects expectations for first quarter 2010 shipments compared with the first quarter of 2009, improved to 59% in the December survey compared to 30% in the September report.
  • The export orders index increased to 47% in December from 19% in the September survey.
  • The backlogs index rose to 36% from 16% in the September survey.
  • The U.S. investment index, which queried executives on their expectations regarding capital investment in 2010, was 66%, up from 47%, indicating increased domestic investment this year.
  • The non-U.S. investment index provides insight into expectations regarding capital expenditures abroad. The December 2009 index was 68%, a solid improvement over the 52% recorded in September.
  • The research and development (R&D) index was 66%, well above the 49% in the previous survey.
  • The annual orders index, based on a comparison of expected orders for all of 2010 with orders in 2009, was an impressive 80% in December compared to 66% in September.
  • The profit margin index increased to 38% in December from 22% in the September report, a solid improvement but still remaining under 50%.
  • The inventory index is based on a comparison of inventory levels in the fourth quarter of 2009 with those of one year prior. It increased to 8% in December from a record low of 7% in September.
  • The capacity utilization index, based on the percentage of firms operating above 85% of capacity, was the lone index to decrease, dropping to 7% in the current survey from 8.4 percent in the previous survey. On a more positive note, though, the percentage of firms operating below 75% of capacity fell to 52.6% from 56.7%.