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At 38, however, the index still indicates that overall manufacturing activity is expected to contract over the next three to six months, relative to the levels of one year ago when the economy was entering the severe recession. It should also be noted that the index measures the direction of change rather than the absolute strength of activity in manufacturing. The September 2009 index marks the fifth consecutive quarterly reading below 50, the demarcation point between growth and contraction.
"The rise in the composite index and the individual indexes, most of which reached record lows in the first or second quarters of 2009, point to the start of a recovery in the manufacturing sector," said Donald A. Norman, Ph.D., MAPI economist and survey coordinator. "While many of the individual indexes remain at very low levels, the forward-looking indexes, like that for annual orders, are at much higher levels, indicating that manufacturing activity is expected to increase in 2010."
While a variety of individual indexes are included in the survey, the business outlook index is a weighted sum of the shipments, backlogs, inventories, and profit margin indexes.
September is the quarter when executives are first asked about their expectations for the next calendar year in a number of areas. The annual orders index, based on a comparison of expected orders for all of 2010 with orders in 2009, was a strong 66 percent.
The U.S. prospective shipments index, which reflects expectations for fourth quarter 2009 shipments compared with the fourth quarter of 2008, improved to 30 percent in the September survey compared to a miniscule 4 percent in the June report, implying that most companies will continue to see domestic shipments decrease this quarter compared to levels one year ago.
The non-U.S. prospective shipments index, which measures expectations for shipments abroad by foreign affiliates of U.S. firms in the fourth quarter of 2009 compared to the same quarter of 2008, rose to 33 percent from 15 percent. The export orders index, which measures how third quarter 2009 exports