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Posted April 17, 2014

Manufacturing prospects look good

Despite some concerns with current business conditions, near-term prospects for the manufacturing sector look bright.


The quarterly Manufacturers Alliance for Productivity and Innovation MAPI Business Outlook composite index is a leading indicator for the manufacturing sector. The March 2014 composite index improved to 69 from 67 in the December 2013 survey—the fifth straight quarterly advance and the highest level since the March 2011 reading of 72. For 18 quarters, the index has remained above the threshold of 50, the dividing line separating contraction and expansion.

“The continued improvement in the composite index and the rise in all of the forward looking individual indexes signal growing confidence that manufacturing activity in 2014 will exceed its 2013 level,” wrote Donald A. Norman, Ph.D., MAPI senior economist 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 outlook, the views of 57 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, 9 increased and 3 declined.

Current Business Condition Indexes
The Capacity Utilization Index, which measures the percentage of firms operating above 85% of capacity, saw a significant increase, climbing to 35.7% in March from 27.3% in December. Its long-term average is 32%.

The Inventory Index, based on a comparison of inventory levels in the first quarter of 2014 with those in the first quarter of 2013, increased to 66 in March from 61 in December. The upward trend indicates an ongoing inventory build. The Backlog Orders Index rose to 69 from 64.

Three indexes declined, showing some softness in the current manufacturing landscape, but all remain above 50, the dividing line between expansion and contraction.
The Export Orders Index, which compares anticipated exports in the first quarter of 2014 with those of one year prior, dropped to 60 from 67. The Profit Margin Index decreased to 66 in March from 72 in December. Finally, the Current Orders Index dipped slightly to 71 from 72 in the previous report.

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