Manufacturers Alliance Business Index Edges Up

April 14, 2005

Slight rise follows two successive declines.

Following two successive declines, the quarterly composite index of future business activity in the manufacturing sector of the U.S. economy compiled by the Manufacturers Alliance/MAPI increased slightly in March. The index now stands at 71, up one point from 70 in December 2004, but still below last September's 75 and the index's all-time high of 80 in July 2004. The Arlington, Va.-based business and public policy research group released its latest data on April 14.

Although release of the group's leading indicator comes as some economists are significantly revising downward their forecasts for overall U.S. GDP growth for the first and second calendar quarters of 2005, "an index of 71 is very strong in absolute terms and signals that manufacturing output is expected to increase over the next three months," says Donald A. Norman, the alliance economist who overseas the survey of senior financial executives from which the index is calculated. "It is clear that most senior financial executives are confident that their companies will continue growing in 2005."

The alliance's composite index of future business activity is a weighted sum of prospective shipments, backlogs, inventories and profit margins. An index number above 50 indicates that the manufacturing sector generally is expanding; a figure below 50 signals that manufacturing generally is expected to decline during the next calendar quarter. The alliance stresses that its index measures the direction of change rather than the absolute strength of the U.S. manufacturing sector.

Some 67 senior financial executives in alliance member companies took part in the latest survey of current and future business conditions. Questionnaires were sent to them at the beginning of March, with responses due by March 29.

Delving into the overall index's details, the prospective shipments index rose to 91% in March 2005 from 86% in December 2004. In March, 84% of survey respondents expected shipments to rise, up from 79% in December of last year. Only 1% of respondents expected shipments would be lower.

The backlogs index was 81% in March, down from December's 85%. "The backlogs index remains strong, however, and shows that backlogs are expanding on a year-to-year basis," says economist Norman. "Just 9% of the respondents reported that backlogs are down from last year, while 71% said backlogs are up."

The inventory index rose to 74% in March from 72% last December, with 66% of survey respondents reporting inventories higher than a year ago and only 18% saying inventories were lower. "The fact that inventories have increased over the past year reflects rising demand for manufactured goods as well as expectations that demand will continue growing," says Norman.

The profit margin index slipped a single point in March, to 66% from 67% in December. Nevertheless, adds Norman, "the profit margin index remains well above the 50% level, indicating that, for most firms, profit margins are higher than one year ago when they were recovering from a rather severe decline."

Although not included in its composite index of future business activity, significantly the alliance's index of export orders reached a record high of 90% in March. The previous all-time high was last December's 89%. "At 90%, the index indicates that export orders for most manufacturing industries will be higher for the first quarter [of 2005] on a year-to-year basis," notes Norman. "The strength of this index is attributable in part to the decline of the [U.S.] dollar against most major currencies."

Indeed, 68% of the alliance's survey respondents said their companies had benefited from currency translations associated with the fall of the dollar, and 35% claimed the fall in the dollar's value had resulted in increased exports. Some 21% said they have benefited from the dollar's fall because imports from Europe are more expensive. Some 21% said they've been hurt because exports from facilities abroad are more expensive. Only 13% of the respondents said their companies have not been affected very much by the decline in the dollar's value. (The survey allowed for multiple responses.)

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.