Although the manufacturing sector of the U.S. economy continues to shed jobs -- some 65,000 during December 2002 -- it appears that production is on the rise and will continue to be between now and the end of March. The quarterly business outlook index compiled by the Manufacturers Alliance/MAPI rose to 67% in December 2002, its highest mark since December 1997. In September 2002 the index was 59%. A figure of 50% or better on the composite business index indicates that overall manufacturing activity is expected to increase during the next three months. "The latest survey represents fairly significant optimism, at least in the near term, for manufacturers in 2003," says the Arlington, Va.-based business policy group. Its 450 member companies include leading producers in heavy industry, autos, electronics, precision instruments, telecommunications, computers, chemicals, oil and gas, and aerospace. However, "while the index clearly points to growth in manufacturing in 2003, it does not provide a measure or forecast of the rate of growth," cautions Donald A. Norman, an economist at Manufacturers Alliance/MAPI. Indeed, "given the continuing inventory correction, much of [the] expected increase in activity may be aimed at rebuilding inventories," Norman says. Nevertheless, several of the signs are encouraging. For example, two of the four components of the overall manufacturing activity index -- profit margins and shipments -- rose significantly between the months of September and December 2002. The profit margins index jumped to 63% in December from 45% in September, the first time in two years that it had crossed the 50% dividing line between falling and rising margins. The shipments index, measuring expectations for the first quarter of 2003, increased to 71% in December from 62% in September. Meanwhile, the index of capital spending, another business activity measure but not part of the composite index, rose to 57% in December from 45% in September. "The jump in the profit margin and capital spending indexes is particularly noteworthy given that these indexes have remained stubbornly low throughout the past two years," says Norman. "The real question now concerns just how strong of a recovery we can expect to see in 2003." The index data were derived from a late-2002 survey of 57 senior financial executives in Manufacturers Alliance/MAPI member firms.