The Economy

Surprise: Manufacturing Business Outlook Index Shows Expansion In March

Dec. 21, 2004

But quarterly measure by Manufacturers Alliance/MAPI dips below December's five-year high.

The quarterly composite index of future business activity compiled by the Manufacturers Alliance/MAPI, an Arlington, Va.-based business policy group, fell to 63% in March, down from a five-year high of 67% in December. However, the index continues to signal that manufacturing output in the U.S. will increase during the next three months, something that's in sharp contrast to the most recent Institute for Supply Management manufacturing index, which showed the U.S. factory sector contracting in March. The Manufacturers Alliance/MAPI business outlook index is a weighted sum of shipments, backlogs, inventories and profit margins. An index figure above 50% indicates the manufacturing sector is expected to expand during the next three months; a figure below 50% suggests contraction is in the works. "The continued relative strength of the composite business outlook index in March is attributable to the rise in the backlogs and inventory indexes," notes Donald A. Norman, an economist at Manufactures Alliance/MAPI and director of its financial councils. "If these two indexes continue to hold up, a measurable increase in manufacturing activity appears achievable in 2003." The backlogs index in March was at 54%, up two percentage points from the 52% posted last December, suggesting new orders were exceeding manufacturers' shipments. Some 40% of the executives responding to the latest survey said backlogs at their companies were up compared with a year ago; 32% said they were down; and 28% said they were about the same. The inventory index in March was 36% compared with 22% in December 2002. "The percentage of respondents reporting higher inventories jumped from just 9% in December to 26% in March, while the percentage of respondents reporting that inventories were lower fell from 65% in December to 55%" in March, relates Norman. Although the inventory index added 14 percentage points between December of last year and last month, the survey data show manufacturing inventories in March were lower than a year before and well below the 67% of March 2001, the month when the most recent U.S. recession was becoming widespread. The survey did turn up some signs of a slowdown during the first calendar quarter of this year. The profit margin index, one of the four components of the overall business outlook index, fell slightly to 59% in March from 63% in December. And both the shipments and export orders indexes, which do not figure into the composite index, declined between December and March. While the data from the latest Manufacturers Alliance/MAPI are a basis for guarded economic optimism, a substantial manufacturing recovery from the most recent recession is still far from a sure thing. "The strength of the recovery is dependent on the outcome of the war in Iraq, consumer spending, energy prices and housing market conditions," cautions Norman. Some 58 senior financial executives whose companies represent a broad range of U.S. manufacturers responded to the survey on which the latest index figures are based. The survey was conducted during March, with just slightly more than half of the responses arriving after March 19, the beginning of the war in Iraq.

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.