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MAPI Outlook: Manufacturing Sector Suffers Setback

A nearly two-year upward trend experienced a setback, according to the quarterly MAPI Foundation Business Outlook, a survey conducted by the MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation.

The survey’s composite index tracks the manufacturing sector. The October 2014 composite index slipped to 67 from 71 in the July 2014 survey, ending a run of six quarters of incremental improvement. Still, it marked the 20th consecutive quarter the index has remained above the threshold of 50, the dividing line separating contraction and expansion.

“The third quarter was less robust than the second quarter for manufacturers but the current index levels nonetheless indicate expansion for the sector,” said Donald A. Norman, MAPI Foundation director of economic studies and survey coordinator.

The Composite Business Outlook Index is based on a weighted sum of the prospective U.S. shipments, backlog orders, inventory and profit margin indexes. In the report, the views of 47 senior financial executives representing a broad range of manufacturing industries are segmented into 12 individual indexes split between current business conditions and forward looking prospects. Of those 12 indexes, three increased, eight declined, and one stayed flat.

The inventory index,based on a comparison of inventory levels in the third quarter of 2014 with those in the third quarter of 2013, increased to 69 in October from 59 in July.

The current orders index, which compares orders in the third quarter of 2014 with the third quarter of 2013, remained at 78 from the previous report. The export orders index, which compares anticipated exports in the third quarter of 2014 with those of one year prior, fell to 65 from 67.

The profit margin index decreased to 67 in October from 70 in July and the backlog orders index also dropped, from 72 to 69.

The capacity utilization index,which measures the percentage of firms operating above 85 percent of capacity, fell to 26.7 percent in October from 30 percent in July. This index, which tends to be somewhat volatile, is below its long-term average of 32 percent.

The prospective U.S. shipments index, which reflects expectations for fourth quarter 2014 shipments compared with those in the fourth quarter of 2013, decreased to 83 from 87 in July. The prospective non-U.S. shipments index, which measures expectations for shipments abroad by foreign affiliates of U.S. firms for the same period, fell to 72 in October from 76 in the previous report. Both indexes are still performing at impressive levels.

The research and development spending index, comparing anticipated spending in 2015 with 2014,improved to 70 from 67 in July. The annual orders index, which is based on a comparison of expected orders for all of 2015 with orders in 2014, was 85, an increase from an already solid 81 in July.

The U.S. investment index, based on executives’ expectations regarding domestic capital investment for 2015 compared with 2014, declined significantly, to 52 from 67 in the previous survey. The non-U.S. investment index, which forecasts investment abroad, also showed a major decline, dropping to 48 from 64.

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