Industry Group Sees Some Growth In Manufacturing

April 12, 2007
Manufacturers Alliance Outlook Index breaks three-quarter slide.

The Manufacturers Alliance/MAPI Survey on the Business Outlook has some optimist news; its March 2007 composite index of 58 is up from 54 reported in the December 2006 survey and breaks a three-quarter slide of decreases. Six of the 10 factors measured by the quarterly survey were higher than the previous report, foreshadowing a likely improvement in the industrial sector.

A composite business index above 50 indicates that overall manufacturing activity is expected to increase over the next three months to six months.

"The survey results of this quarter are evidence of latent strength in most manufacturing industries and are a harbinger of renewed vigor in the latter half of the year," said Donald A. Norman, Ph.D., Manufacturers Alliance/MAPI economist. "Most industries, with the exception of those businesses closely linked to the housing sector, should expand this year although the rate of expansion is likely to be less than in recent years."

A look at specific components indicate that the most improved index was the prospective shipments which rose to 73% in March 2007 as compared to 62% in December 2006.

Capacity utilization, based on the percentage of firms operating above 85% of capacity, increased to 46.7% in March 2007 from 38.2% in December 2006 and remains well above its long-term average of 32.5%.

The investment index, which queries executives on their expectations regarding capital investment in 2007 compared to 2006, rose to 71%, from 64% in December 2006.

The backlogs index came in at 60% compared to 57% in December 2006.

The annual orders index, returned to 80% in March 2007 from 78% in the December 2006 survey.

The research and development (R&D) index, which confirms the underlying strength in manufacturing according to the Alliance, maintained its robust 75% level in March 2007, just above the 74% recorded in December 2006. Meanwhile, the profit margin index was flat, remaining at 62%.

The orders index fell to 60% from 66% last year while the exports orders index registered 75% versus the 77% last year. The inventory index rose to 77% from 76% in December.

In a supplemental section of the survey, senior financial executives responded to questions relating to expenditures on intangible investments like R&D, advertising, employee training and education, process improvements and information technology (IT), which are not expensed. The survey found that, on average, capital investment was equal to 8.7% of revenue. Expenditures for intangible investments, as a percent of capital expenditures, averaged 103.5%.

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