The manufacturing recovery continues to trend upward and has rebounded from severely depressed levels in 2009, according to the quarterly Manufacturers Alliance/MAPI Survey on the Business Outlook -- June 2010. The index rose to a record high 81% from 78% reported in the March 2010 report.

It breaks the previous high of 80% set in June 2004 and marks the third straight quarter it has reached 50% or above. The new benchmark for the index represents a significant turnaround from March 2009 when the index registered an historic low 21%.

"The overall composite index and several forward-looking individual indexes (orders, export orders, and U.S. prospective shipments) achieved new heights and indicate continued recovery in manufacturing," said Donald A. Norman, Ph.D., MAPI Economist."We should remain cautious, however, because many of the individual indexes are based on year-over-year comparisons. Manufacturing sector production fell sharply during the second quarter of 2009; a broad-based increase in production from the production trough reached at the end of the second quarter of 2009 would naturally lead to an increase in these indexes. Still, the broad-based strength in the composite index and the individual indexes point to further expansion in the next three to six months."

The backlog orders index, which compares the second quarter 2010 backlog of orders with the backlog of orders one year earlier, rose to 87% in June from 63% in the March survey.

The inventory index increased to 44% in June from 23% in March, still below 50%.

The quarterly orders index rose to a record high 97% from 85% in the previous survey.

The capacity utilization index improved to 20% in the current survey from 9.8% in the previous survey. While still far below the long-term average utilization rate of 32%, this is the first significant improvement for an index that had been stuck at very low levels since the fourth quarter of 2008.

The export orders index set a new high of 85% in June from 76% in March.

The U.S. prospective shipments index also set a record, improving to 93% in the June survey compared to 88% in the March report.

The non-U.S. prospective shipments index increased to 85% from 80%.

The U.S. investment index, based on expectations of executives regarding capital investment for all of 2010, was 74%, up from 69%, indicating increased domestic investment this year.

The profit margin index increased to 78% in June from 74% in the March report.

The research and development (R&D) index, which reflects the views of survey participants regarding R&D spending in 2010 compared to 2009, was 72%, slightly above the 70% recorded in the previous survey.

The annual orders index continued to be impressive at 95% in June compared to 94% in March.

The non-U.S. investment index was 67%, falling slightly from the 70% recorded in March. The fact that this index remains at a high level, however, implies that a significant number of respondent companies are anticipating capital spending growth outside the United States.

Respondents were queried regarding their confidence in the recovery and their companies' plans for hiring and capital spending. Most executives (68%) related that they are "confident" or "very confident" that a normal recovery for their businesses is under way, with the primary drivers being increased orders and the upswing in activity in cyclical industries like the automobile industry.

Almost half (48.4%) of the respondents indicated that their company is planning to hire more permanent workers in the United States in the latter half of 2010.

Most companies, though, are not planning to change capital spending as a result of the recovery. Still, 31.7% of the survey participants indicated U.S. capital spending will increase either slightly or moderately and 18.9% said capital spending abroad will increase over the next twelve months.

Despite the general level of confidence in the recovery, respondents identified a number of speed bumps that could undermine the recovery. The two most serious threats, each cited by 67.2% of the respondents, are continued high unemployment/low income growth, and the growing federal deficit and its impact on interest rates, inflation, and the dollar.