The results of the quarterly Manufacturers Alliance for Productivity and Innovation (MAPI) Survey on the Business Outlook (EO-113) indicate slowing growth for U.S. manufacturing over the next three to six months, in line with most other forecasts that show a continued softening in the industrial base.
The survey’s composite index is a leading indicator for the manufacturing sector. The September 2012 composite index fell to 56 from 61 in the June 2012 survey. Despite the decline—its ninth straight since reaching a record high of 81 in June 2010—the index remains above the threshold of 50, the dividing line that separates contraction and expansion. The drop of 5 percentage points, however, is the largest over the nine-quarter decline and comes on the heels of a 4 percentage point drop in the previous report.
“This quarter’s survey results add an exclamation point to the view that manufacturing activity has slowed, but this is not to suggest that it is crashing,” said Donald A. Norman, Ph.D., MAPI Senior Economist and survey coordinator. “In fact, it is expected to expand, even if at a much slower rate than what we’ve experienced over the past two years.”
The Composite Business Outlook Index is a weighted sum of the Prospective U.S. Shipments, Backlog Orders, Inventory, and Profit Margin Indexes. In addition to the composite index, which reflects the views of 60 senior financial executives representing a broad range of manufacturing industries, the survey includes 13 individual indexes that are split between current business conditions and forward looking prospects.
Twelve of the 13 indexes decreased, including the six current business conditions indexes.
Based on a comparison of inventory levels in the third quarter of 2012 with those in the third quarter of 2011, the Inventory Index fell significantly, to 58 in September from 73 in June. The Current Orders Index, a comparison of expected orders in the third quarter of 2012 with those in the same quarter one year ago, declined to 57 in September from 70 in the June survey.
The Interest Rate Expectations Index was the lone index to increase, to 56 from 51, indicating sentiment that longer-term interest rates are still expected to rise by the end of the fourth quarter of 2012.
The annual September survey is the first time respondents are asked for forecasts in the following year compared to the current year in four categories.
The U.S. Investment Index is based on executives’ expectations regarding domestic capital investment for 2013 compared to 2012. The index was 54 in September, a precipitous drop from 81 in the September 2011 survey. The Non-U.S. Investment Index, based on expectations regarding capital expenditures abroad in 2013 compared to 2012, also showed significant softening to 60 in the September 2012 report compared to 75 one year ago.
The Annual Orders Index, based on a comparison of expected orders for all of 2013 with orders in 2012, eased to 75 in September 2012 from 84 in September 2011 yet remained at an impressive level.
The Research and Development Spending Index surveys participants regarding R&D spending in 2013 compared to 2012. The index was 68 in the current report compared to 76 in September 2011.
In a supplemental section, participants were queried on the potential for the U.S. economy going over the “fiscal cliff” if tax increases and spending cuts are enacted starting January 1, 2013.
MAPI’s Composite Business Outlook Index is an historically accurate near-term preview of business prospects for the manufacturing sector and is a leading indicator of the Federal Reserve’s industrial production index.
Read the full MAPI Composite Business Outlook