Mirroring the downturn in the overall U.S. economy, the manufacturing sector is expected to face significant challenges in the near-term according to the quarterly Manufacturers Alliance/MAPI Survey on the Business Outlook. The June 2008 composite index registered a drop to 50 from 57 as reported in the March 2008. At this level, the index indicates that overall manufacturing activity is expected to remain flat over the next three to six months.
"This quarter's results unequivocally reflect slowing activity in manufacturing and offer little prospect for an overall increase in activity over the next three months," said Donald A. Norman, Ph.D., MAPI Economist and survey coordinator. "The news, however, is not all bad. The rise in indexes for backlogs, non-U.S. prospective shipments, and non-U.S. investment, coupled with the strength of the indexes for capacity utilization and exports, indicate that most of the manufacturing sector is holding up much better that it did in the last recession largely because non-domestic business continues to grow."
Looking closer at the indexes, the annual orders index slipped to 50% compared with 68% in the March 2008 survey. The inventory index rose to 69% in June from 54% in March, signaling a sharp buildup in inventories, and representing further evidence of a slowdown in the sector. The quarterly orders index fell to 46% from 58% and the prospective U.S. shipments index declined to 52% from 62%.
Meanwhile, the profit margin index gave back a more modest five percentage points, falling to 55% in June in relation to 60 % in the March report.
The prospective non-U.S. shipments index measures expectations for anticipated shipments outside the United States, in this case for the third quarter of 2008 compared to the same quarter of 2007. The index increased to 89% in June from 80% in March.
The non-U.S. investment index provides insight into expectations regarding non-U.S. capital expenditures, comparing a firm's outlook for all of 2008 with 2007. This index measured 77%, two points above the 75% in the March survey, and well above the U.S. investment index.
The capacity utilization index, based on the percentage of firms operating above 85% of capacity, increased to 41% in June 2008 from 38.3% in March 2008.
The export orders index edged up to 73% in June from 72% in the previous survey.
Two indexes remained flat at positive levels of activity. The U.S. investment index, which queried executives on their expectations regarding capital investment in 2008 compared to 2007, held steady at 62%. The research and development (R&D) index remained at 72%.
When asked about the challenges regarding the dramatic and sustained rise in the price of oil and petroleum, a wide majority, 83.3%, characterized the price impact on production costs as "moderate" or "significant" compared to 78.8% who indicated the same for logistics.