Continued growth in the industrial sector is expected, but at a slower rate than over the past 12 months, according to the results of the quarterly Manufacturers Alliance/MAPI Survey on the Business Outlook. The June 2011 composite index fell to 68% from 72% in the March report.
This is the seventh consecutive quarter the index has been above the 50%t threshold, but it also represents the fourth straight decline from the record high 81% one year ago.
"Overall manufacturing sector activity remains fairly robust even if the rate of expansion is slowing," said Donald A. Norman, Ph.D., MAPI economist.
Respondents were asked about their companies' investment in U.S. capacity. Most companies, 64%, neither opened nor closed U.S. plants over the past year. One-fourth of the companies, however, closed a total of 27 plants. Just over 10% of the companies surveyed have plans for relocating plants back to the United States. Forty-four percent of the companies increased the capacity of their U.S. plants by an average of 9.8% over the past year, while 17% reduced capacity by an average of 12.7%.
The June survey indicates continued growth in capital spending. Most firms, 82%, are planning to increase capital outlays for existing U.S. plants over the next 12 months, and capital spending is expected to rise by 10% or more in 40% of these companies.
The need for equipment repair and replacement and the desire to modernize equipment to increase productivity were noted as the top two reasons for capital spending over the past year. As for the most important factors that might discourage capacity investments, survey respondents listed federal tax policy, U.S. wage levels, and government regulations in rank order.
Highlights of the survey include:
- The R&D index reached a record high of 83% in the June survey, a solid increase from 75% in March.
- The export orders index saw a record high 87% in June from 80% in March.
- The U.S. prospective shipments index, which reflects expectations for third quarter 2011 shipments compared with the third quarter of 2010, dropped to 82% in the June survey from 89%in the March report.
- The non-U.S. prospective shipments index, which measures expectations for shipments abroad by foreign affiliates of U.S. firms in the third quarter of 2011 compared to the same quarter in 2010, increased to a record tying 89% from 84%.
- The profit margin index rebounded to 78% in June from 76% in March.
- The capacity utilization index, based on the percentage of firms operating above 85% of capacity, which edged up to 32.3% in June from 30.7% in March.
- The inventory index increased to a record high 82% in June from 79% in March.
- The annual orders index slipped to 86% in June from 90% in March.
- The backlog orders index fell to 80% from 83%. Declining backlogs signal slowing activity.
- The U.S. investment index was 78%, a nominal retreat from 79%in the previous survey.
- The non-U.S. investment index was 77% in June compared to 79% in March.