Manufacturing Business Indicator Moves Into Growth Territory

Latest data suggest rebounding economy, but manufacturing recovery may not be uniformly strong, reports Manufacturers Alliance/MAPI.

Consistent with other indicators that suggest U.S. manufacturing is on its way to recovery from recession, the latest quarterly index of future business activity from the Manufacturers Alliance/MAPI is signaling increased output during this calendar quarter. The business-policy research group's index for March 2002 reached 52%, the first time since December 2000 that it has been at -- or above -- the critical growth/no-growth 50% level. In December 2001, the index was at 40%. And in March 2001, the month that the National Bureau of Economic Research figures the recession began, the index was at a 29-year low of 34%. The future business activity index is a weighted measure of shipments, backlogs, inventories and profit margins -- and all those elements showed improvement between the alliance's previous read in December 2001 and March of this year, when its most recent economic survey of senior financial executives was conducted. The shipments index, a preview of the level of manufactured goods expected to be shipped during the next calendar quarter compared with the year-before mark, rose to 53% from 42%. The backlog index rose slightly to 34% from 31%. The profit margin index, while still low by historical standards, advanced to 39% from 21%. And the inventory index fell to 20% from 36%, bringing stocks of goods closer to the points where they'll need to be replenished. Additionally, the alliance's annual-order index, which comes out of the quarterly survey data but is not included in the index of future business activity, advanced to 62% in March from last December's 57%. In brief, that means more executives in March were optimistic about a 2002 manufacturing turnaround than were three months before. The March survey "provides solid evidence" that the manufacturing sector of the U.S. economy is starting to rebound, says Donald A. Norman, the Manufacturers Alliance/MAPI economist who coordinates the survey and crunches the numbers. However, although the manufacturing recovery in the near term appears to be solid, it may not be uniformly strong, he cautions. For example, the alliance's capital spending index dropped to 32% in March from 38% in December 2001, a sign that manufacturers "are not yet prepared to commit to long-term spending on new equipment and capacity," says Norman. Indeed, between December and March the percentage of companies that expected to increase capital expenditures this year from their 2001 outlays fell to 12% from 20%. Some 57 senior financial executives from a sample of Manufacturers Alliance/MAPI member companies responded to the group's most recent survey. The Arlington, Va.-based group's survey was sent out in early March, with responses due back by March 28, 2002.

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