Manufacturing outlook indicates continuing expansion

Oct 11, 2004

Pace of Growth Slowed Slightly in September But Sector Remains Strong

Manufacturing expansion is expected to continue over the next three to six months, according to the quarterly Manufacturers Alliance/MAPI Survey on the Business Outlook. The September 2004 composite index of 75, while retrenching slightly from an all-time high of 80 in June 2004, nevertheless signals strength in the manufacturing sector and remains high relative to an historical trend over the past 13 years.

“Overall, the business outlook indexes are high in absolute terms and point to continued expansion of manufacturing sector activity,” said Daniel J. Meckstroth, Ph.D., Chief Economist for the Manufacturers Alliance/MAPI. “While the pace of growth may have slowed in the third quarter, the survey shows that the manufacturing expansion is broadly based, with most industries growing, and has a solid foundation of rising domestic and foreign demand.”

The Manufacturers Alliance’s survey report comes in the wake of similar news of the sector’s strength released by the Institute for Supply Management (ISM), October 1. Just after the release of ISM’s report, Thomas J. Duesterberg, Ph.D., President and Chief Executive Officer of the Manufacturers Alliance/MAPI, said “The ISM report confirms that manufacturing continues to grow faster than the overall economy. Production and employment both picked up speed in September, which indicates this recovery has become self-sustaining. This is particularly encouraging in view of the strong headwinds produced by rising oil and commodity prices and the four hurricanes that hit the Southeast.”

According to the Alliance, the survey reflects the views on current and future business conditions of 62 senior financial executives representing a broad range of manufacturing industries. While a variety of indexes are included in the survey, the business outlook index is a weighted sum of shipments, backlogs, inventories, and profit margin indexes. A composite business index above 50 indicates that overall manufacturing activity is expected to increase over the next three months. It should be noted, however, that the index measures the direction of change rather than the absolute strength of activity in manufacturing.

Capital Investment Rising
Of particular note to machine builders and automation suppliers is the upbeat assessment of capital spending plans. The investment index question asked executives how capital investment in 2005 would compare to investment in 2004. The index improved to 69 % in this survey from 64 % in September 2003. This relative optimism suggests continued expansion of investment spending next year.

Meanwhile, there were either minor improvements or minor declines in most components of the index, leaving the overall index on continued solid footing.

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