A less severe tumble than feared in these turbulent economic times may give the manufacturing sector reason for cautious optimism, according to the quarterly Manufacturers Alliance/MAPI Survey on the Business Outlook. The March 2003 index fell to 63 from a five-year high of 67 in the December 2002 survey. Still, in light of recent weak reports by other economic indicators, the index paints a modestly positive outlook for manufacturing in the near term.
A composite business index above 50 indicates that overall manufacturing activity is expected to increase over the next three months. This latest survey shows signs that manufacturing may yet pull out of the doldrums before the end of 2003. The index measures the direction of change rather than the strength of activity in manufacturing.
A number of individual indexes showed improvement, perhaps the most significant being the capital investment index, which rose to 62% in March from 57% in December, suggesting that capital investment may indeed increase over last year's depressed level.
The current orders index that compares new orders for the first quarter of 2003 with the same quarter of a year ago rose from 60% in December to 67% in March. The backlogs index also rose slightly, from 52% in December to 54% in March. An accumulation of backlogs, and a rising backlogs index, occurs when new orders exceed shipments, and thus is a positive indicator.
The inventories index rose from a relatively low level of 22% in December to 36% in March. The rise in this index indicates that some manufacturing sectors are starting to rebuild inventories.
There were some signs of a slowdown in the first quarter. The export orders index fell from 59% in December to 54% in March. Still, it remains above the 50% level, indicating that exports are higher than one year earlier. The shipments index, which focuses on prospective shipments in the next quarter, fell slightly from 71% to 69%. Finally, the profit margins index slipped from 63% in December to 59% in March.
"Overall, the outlook for the manufacturing sector remains positive for 2003, although the strength of the recovery is dependent on the outcome of the war in Iraq, consumer spending, energy prices and housing market conditions," said Donald Norman, Ph.D., Manufacturers Alliance/MAPI economist and survey coordinator.