Manufacturers Alliance for Productivity and Innovation Business Outlook Brightens

The results of the quarterly Manufacturers Alliance for Productivity and Innovation (MAPI) Business Outlook point to a degree of renewed momentum in manufacturing activity over the next three to six months.

The survey’s composite index is a leading indicator for the manufacturing sector. The June 2013 composite index advanced to 58 from 56 in the March survey, the second straight quarterly advance after 10 consecutive quarterly declines. For the past 15 quarters, the index has remained above the threshold of 50, the dividing line separating contraction and expansion.

“The improvements in the composite index and a number of individual indexes, though modest, are encouraging given that manufacturing sector activity in the late winter and early spring had slowed from its pace at the end of 2012 and early 2013,” said Donald A. Norman, Ph.D., MAPI senior economist and survey coordinator in a recent interview. “I was really pleased to see some hopeful signs. There is some cause for optimism and I’m starting to feel more hopeful this year than I was last year.”

Things are picking up, said Norman, and although expansion will likely continue to be modest it also seems to be less volatile. Last year, industrial production jumped up 9.8% in the first quarter. Since GDP was much smaller, it was not surprising to see a sharp drop in the second and third quarters. The production simply wasn’t sustainable, Norman said. This year, industrial production is up 5% in the first quarter. “Some of this volatility in the industrial production index has been quite an up and down pattern over the last year and a half,” Norman said. “We may be seeing a smoother pattern, and I certainly hope so since it’s hard to make business plans with that sort of up and down.”

Norman also noted that the non-U.S. Investment Index fell rather sharply, but this was not a surprise to members. “All of us are concerned about what’s happening globally because U.S. manufacturers are so connected to what’s going on in other markets.”

Domestically, Norman said many employers remain uncertain over the impact of the Affordable Care Act. Those manufacturers tempted to cut healthcare costs might not remain competitive in terms of attracting and retaining talent, yet those who do cut costs might gain a competitive advantage as well. “The whole industry is watching one another to see which choice is made,” Norman said.

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 addition to the composite index, which in this survey reflects the views of 54 senior financial executives representing a broad range of manufacturing industries, the report includes 13 individual indexes that are split between current business conditions and forward looking prospects. Of those 13 indexes, 9 individual indexes increased and one remained flat.

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