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MAPI Outlook: Manufacturing Sector Growth to Continue

The recent robust manufacturing performance should continue in the near-term despite marginal declines in some indicators, 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 January 2015 composite index slipped to 66 from 67 in the October 2014 survey, the second straight decline after six quarters of incremental improvement. Still, it marked the 21st consecutive quarter the index has remained above the threshold of 50, the dividing line separating contraction and expansion.

"The trends in both current and future business conditions were mixed," said Donald A. Norman, MAPI Foundation director of economic studies and survey coordinator. "The results of the January survey point to continued expansion of manufacturing activity heading into 2015, but at a slightly slower pace than in the latter half of 2014."

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 53 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, four increased and eight declined.

The capacity utilization index, which measures the percentage of firms operating above 85 percent of capacity, increased to 42.3 percent in January from 26.7 percent in October. This index, which tends to be somewhat volatile, is well above its long-term average of 32 percent.

The profit margin index also showed growth, increasing to 70 in January from 67 in October.

The current orders index, which compares orders in the fourth quarter of 2014 with the fourth quarter of 2013, dropped to 71 from 78 in the previous report. The inventory index, which compares inventory levels for the same period, declined to 62 from 69.  

The export orders index, which compares anticipated exports in the fourth quarter of 2014 with those of one year prior, fell to 59 in January from 65 in October. The backlog orders index dipped only marginally, to 68 from 69.

The U.S. investment index, based on executives’ expectations regarding domestic capital investment for 2015 compared with 2014, improved to 58 from 52 in the previous survey. The non-U.S. investment index, which forecasts investment abroad, showed a significant advance, rising to 62 in January from 48 in October.

The prospective U.S. shipments index, which reflects expectations for first quarter 2015 shipments compared with those in the first quarter of 2014, decreased to 77 from 83 in October. 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 58 in January from 72 in the previous report. Both indexes, though, are still performing at high levels.

The research and development spending index, comparing anticipated spending in 2015 with 2014, fell to 67 from 70. The annual orders index, which is based on a comparison of expected orders for all of 2015 with orders in 2014, was 82, a slight decline from a solid 85 In October.

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