The Economy

Manufacturing Measure Rebounds Sharply

Dec. 21, 2004

At 68% in September, the Manufacturers Alliance/MAPI index signals near-term increase in output.

It's not yet time to break out the bubbly and toast the end of a nearly three-year U.S. manufacturing recession. But executives eyeing the results of the latest quarterly composite index of future business activity compiled by Manufacturers Alliance/MAPI, an Arlington, Va.-based business and public policy research group, can be excused for being in a celebratory mood. The index rebounded sharply in September, rising to 68% last month from 60% in June and indicating that U.S. manufacturing output should increase during the next three to six months. Indeed, September's composite index along with other survey measures constitute the most optimistic outlook in three years, the manufacturers group states. The composite index, based on a survey of senior financial officers in manufacturing companies, is a weighted sum of prospective shipments, backlogs, inventories and profit margins. An index figure above 50% suggests that the manufacturing sector of the U.S. economy is growing; a number below 50% signals contraction. Some 54 senior financial executives participated in the most recent survey, which was conducted during September. Delving into the composite index's details, the prospective shipments index advanced to 80% in September from 70% in June. "The percentage of respondents expecting shipments to rise increased from 57% in June to 67% in September, while just 7% expect shipments to be lower," relates Donald A. Norman, the Manufacturers Alliance/MAPI economist who oversees the group's business outlook survey and prepares a quarterly report. The backlogs index also posted a significant advance, rising to 69% in September from 56% in June. Generally when new orders exceed shipments backlogs build up and, therefore, a rising backlogs index is a positive sign, notes Norman. The overall inventory index fell to 33% in September from 42% in June, and in this instance a decline is positive. "The decline in the inventory index indicates that inventories remain lean," says economist Norman. "This should contribute to expanded production later this year and into next year to meet any increase in the final demand for manufactured products in order to maintain-and even rebuild-inventories." The profit margins index was the one element of the composite index that did not improve between June and September. It slipped to 45% in September from 47% in June, its third consecutive quarterly decline. "The decrease in this index reflects continuing competitive pressures faced by manufacturers, and it is consistent with the price trends of many durable manufactured products," says Norman. September's Manufacturers Alliance/MAPI composite index of future business activity is consistent with economic forecasts for rising growth of GDP during the second half of 2003, says Norman. But he cautions that some of the individual indexes in the latest survey compare current levels with levels a year ago, a time when manufacturing was declining. And he reminds executives that any recovery could be thwarted by such things as a slowdown in consumer spending or a jump in energy prices.

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.