Steady growth for manufacturing continuing

04/14/2006


Two new reports show steady growth and continued optimism for the manufacturing sector.

The quarterly Manufacturers Alliance/MAPI Survey on the Business Outlook showed a March 2006 composite index of 74 equals that of the previous December 2005 survey, an indication that the industrial component of the U.S. economy, with the possible exception of the auto industry, remains on firm ground.

A composite business index above 50 indicates that overall manufacturing activity is expected to increase over the next three months to six months. It should be noted, however, that the index measures the direction of change rather than the absolute strength of activity in manufacturing.

Eight of the 10 factors measured by the quarterly survey were higher than the previous report.

The profit margin index showed the greatest improvement, jumping from 74% in December to 82% in March, setting a new record by surpassing the index’s previous high of 79% reached in June 2004.

Two other individual indexes equaled their all-time highs. The export orders index, which measures how first quarter 2006 orders are expected to compare with those of first quarter 2005, increased from 74% in December to 78% in March. This ties the 78% reached in March 1995 and in March 2005 and indicates that for a wide majority of firms profit margins are higher than one year ago. The investment index reflects executives’ expectations for capital investment in 2006. The index improved to 81% in this survey from 79% in December 2005, tying the record high in December 2003, indicating that most see investment rising in 2006.

The orders index, which compares new orders for the first quarter of 2006 with the same quarter one year ago, increased from 84% in December to 89% in March.

The research and development index also improved from 69% in December to 74% in March, and indicates an increase in R&D spending in 2006.

The capacity utilization index, based on the percentage of firms operating above 85% of capacity, jumped from 42.0% in December to 45.8% in March, while the number of firms operating at less than 75% of capacity decreased from 8.0% to 6.8%, yet another positive sign for manufacturing.

The inventory index rose from 64% in December to 67% in March, indicating inventories continue to be higher on a year-to-year basis.

The forward-looking annual orders index, based on a comparison of expected orders for all of 2006 with orders in 2005, rose from 91% in the December 2005 survey to an even stronger 92% in the current report. Interestingly, only 3% of the respondents indicated they expected fewer annual orders in 2006.

The latest Manufacturing ISM Report On Business, issued by the Institute for Supply Management Manufacturing Business Survey Committee, says economic activity in the manufacturing sector grew in March for the 34th consecutive month, while the overall economy grew for the 53rd consecutive month.

The PMI indicates that the manufacturing economy grew in March for the 34th consecutive month as it registered 55.2%, a decrease of 1.5 percentage points when compared to February’s seasonally adjusted reading of 56.7%.

ISM’s New Orders Index grew in March with a reading of 58.4%. The index is 3.5 percentage points lower than the seasonally adjusted 61.9% registered in February. March is the 35th consecutive month the index has exceeded 50%.

ISM’s Employment Index expanded for the 10th consecutive month in March. The index registered 52.5% in March compared to the seasonally adjusted 55% registered in February, a decrease of 2.5 percentage points.

The delivery performance of suppliers to manufacturing organizations was slower for the 33rd consecutive month in March. ISM’s Supplier Deliveries Index for March registered 53.1%, an increase of 0.9 percentage points when compared to February’s seasonally adjusted reading of 52.2%.





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