The Economy

Future Business Activity Indicator Hits All-Time Low

Dec. 21, 2004

Largest calendar-quarter decline since 1991, reports Manufacturers Alliance/MAPI.

The economic recession in U.S. manufacturing is deep. And it is likely to get deeper during the current calendar quarter, suggests the Arlington, Va.-based Manufacturers Alliance/MAPI. At 34%, its Business Outlook Index is sending a strong signal that manufacturing output is likely to continue to decline between now and the end of June. Significantly, the index, a highly regarded predictor of future business activity, is now at its lowest point since the manufacturing research group began compiling the measure in 1972. What's more, the decline in the index of future business activity to 34% in March 2001 from 50% in December 2000 is the largest single calendar-quarter drop since Sept. 1991, when the index was first compiled quarterly. The index's tipping point between expansion and contraction is 50%. Above the mark, manufacturing is growing; below it, the output of U.S. goods is shrinking. The index is a weighted sum of indexes for manufacturing shipments, backlogs, inventories, and profit margins, and is compiled from data provided by senior financial officers of U.S.-based manufacturers. The latest data are a product of the Manufacturers Alliance/MAPI survey of 120 of its 450 members during the first week of March; the response rate was an impressive 41%. During this year's first three months, the forward-looking Manufacturers Alliance/MAPI shipments index plunged to 36% from 58%. Its profit-margin index sank to 19% from 46%, the lowest it had been since the 18% recorded in the July-September quarter of 1982. At that time the U.S. economy was in a severe recession. The index of order backlogs fell to 47% from 54%, not a positive sign because the index is below 50%. However, the index of manufacturers' inventories remained at 67%, "suggesting that the growth in inventories may have peaked," notes Donald A. Norman, the Manufacturers Alliance/MAPI economist who compiles the data. Separately, the survey confirms that U.S.-based manufacturers have dramatically lowered their capital-spending expectations for 2001. Only 19% of the senior financial officers responding now expect their companies' capital outlays to be higher this year than last. Some 44% believe they will be lower. Three months ago, the executives were evenly divided, with 35% saying their capital investments would increase and 35% saying they'd decrease. A solid-majority 74% of the financial executives predict long-term interest rates will fall during the current calendar quarter. Only 2% expect an increase. Some 24% believe long-term rates will remain about the same. "The fact that the [U.S.] Federal Reserve Board . . . has reduced its overnight lending rate by 150 basis points since the beginning of the year probably has much to do with these expectations, even though the Fed may be following rather than leading the decline," says economist Norman.

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.