Although U.S. manufacturing output is likely to continue to contract during the next three months, the makings of a business recovery for companies that make durable and nondurable goods appear to exist, indicates the latest Business Outlook Survey from the Manufacturers Alliance/MAPI, an Arlington, Va.-based research group. The quarterly index, which is a weighted sum of shipments, backlogs, inventories, and profit margins, was at the 40% mark in September, compared with 35% in June and an all-time low of 34% in March of this year. An index level below 50% signals a shrinking manufacturing sector; when the index is above 50% it is generally a sign that the manufacturing sector of the U.S. economy is expanding. "The fact that the index reached bottom in March 2001 and has since risen, even if only slightly, is a sign that the manufacturing sector is starting to recover," says Donald A. Norman, the economist who surveys a sample of senior financial officers at Manufacturers Alliance/MAPI member firms and calculates the index. "The attacks on Sept. 11 may delay the recovery, but the foundation for a recovery appears to be in place," The inventory component of the Business Outlook Survey index is now at 37%, some eight percentage points below its June 2001 mark of 45% and dramatically lower than this past March's 67%. This indicates that manufacturing inventories are continuing to decline. "In particular, the fact that an inventory correction is underway is a hopeful sign that the inventory overhang is being reduced. Once it is, manufacturing output should increase," says Norman.