The Economy

Manufacturing Activity Index Sets Third Consecutive Record

Dec. 21, 2004

Data show 'real and robust' recovery, says Manufacturers Alliance.

In contrast to last week's data from the Institute for Supply Management, which showed the heady pace of U.S. manufacturing's recovery from the 2001 recession slowing a bit in June, the latest composite index of future business activity compiled by the Manufacturers Alliance/MAPI is at a record level. The Arlington, Va.-based alliance's June quarterly figure stands at 80, the highest figure in the index's 32-year history and the third consecutive quarterly record number. It indicates that U.S. manufacturing output is expected to increase during the next three to six months. The previous record was March's figure of 78. "The rise in this [composite] index, along with the strength shown by all the individual indexes [in the most recent survey], indicates that the expansion of manufacturing activity is real and robust," says Donald A. Norman, the economist who oversees the business and public policy research group's outlook survey and prepares the quarterly report. Norman, however, cautions that the alliance's composite index measures direction of change, rather than the absolute strength, of manufacturing activity. The composite index, based on a survey of senior financial executives among Manufacturers Alliance/MAPI members, is a weighted sum of backlogs, inventories, profit margins and prospective shipments. An index figure above 50 indicates that the manufacturing sector of the U.S. economy generally is expanding; a number below 50 signals that it is contracting. Some 60 executives participated in the most recent survey, which was distributed at the beginning of June with responses due by June 25. The backlogs index posted its seventh consecutive quarterly increase, rising to 93% in June from 85% in March. "An accumulation of backlogs -- and a rising backlogs index -- usually occurs when new orders exceed shipments. Thus, the rising backlogs index is a positive sign," explains economist Norman. In another positive sign, the inventory index increased to 61% in June from 46% in March, the first time since March 2001 that this index has been above the 50% mark. "The fact that inventories are now increasing likely reflects rising demand for manufactured goods over the past year as well as expectations that demand will continue to grow throughout 2004," says Norman. "Simply put, most manufacturers now see a need to build up inventories." For the third consecutive quarter, the profit margin index rose in June. It now stands at 79%, up from 73% in March and vastly improved from its all-time low of 19% in March 2001. Finally, the index of prospective shipments advanced to 93% in June from 90% in March, signaling an increase in shipments during the current calendar quarter when compared with the third quarter of last year. "It is worth noting that the third quarter of 2003 marked the beginning of stronger growth in manufacturing after a double-dip recession," says Norman. "The expected year-over-year growth is even more significant because of the more difficult comparison with the year earlier. That is, higher growth in the third quarter of 2003 raised the bar in terms of being able to show year-to-year comparisons."

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.