Manufacturing's Rate of Growth Slowing

April 14, 2011
However MAPI sees a 'clear and consistent picture of continued growth.'

The results of the quarterly Manufacturers Alliance/MAPI Survey on the Business Outlook -- March 2011 suggest a continued growth trend for manufacturing, although the rate of growth may start slowing later this year. The March 2011 composite index fell slightly to 72% from 75% in the December 2010 report.

This is the sixth consecutive quarter the index has been above the 50% threshold, the dividing line that separates contraction and expansion. The current index is a dramatic improvement from the record low 21% recorded two years ago in the March 2009 survey, signaling that a turnaround for industry continues.

"The results of the March survey show the indexes to be strikingly robust and relatively stable," said Donald A. Norman, Ph.D., MAPI economist and survey coordinator. "As such, they paint a clear and consistent picture of continued growth in manufacturing sector activity."

Highlights of the survey include:

  • Quarterly orders index, based on a comparison of expected orders in the first quarter of 2011 with those in the same quarter one year ago, increased to 91% in March from 87% in December
  • U.S. investment index was 79% percent, a nominal retreat from 81% in the previous survey. It is based on expectations of executives regarding domestic capital investment for 2011 compared to 2010.
  • Non-U.S. investment index was a solid 79% in March compared to an already strong 75% in December.
  • R&D index was 75% in March, slightly above the 73% in the December report. It reflects the views of survey participants regarding R&D spending in 2011 compared to 2010.
  • The U.S. prospective shipments index, which reflects expectations for second quarter 2011 shipments compared with the second quarter of 2010, edged up to 89% in the March survey from 88% in the December report.
  • Annual orders index remained at 90% from the December to the March survey
  • Export orders index stayed at 80%
  • Backlog orders index held steady at 83%.
  • Inventory index increased to 79% in March from 69% in December
  • Profit margin index fell to 76% in March from a very strong 85% in December
  • Capacity utilization index slipped to 30.7% in the current survey from 33.3% in December. It is based on the percentage of firms operating above 85% of capacity.

Respondents were asked about their outlook for, and impact of, rising commodity prices. Slightly more than half, 54.7%, expect prices will rise moderately throughout the year while 37.5% expect prices will rise initially before leveling off. Prices of oil and petroleum products, named by 37.3% of the participants, are expected to experience the largest increases, followed by steel at 25.4%.

Fifty percent of the respondents indicate that rising commodity prices are having a "moderate" to "significant" impact on profit margins. Most companies (82%) are not increasing inventories of commodities whose prices are expected to increase this year, while 26.2% are purchasing futures contracts as a hedge against future increases in commodity prices.

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