Manufacturing’s Rate of Growth Slowing
The results of the quarterly Manufacturers Alliance/MAPI Survey on the Business Outlook — March 2011 suggest a continued growth trend for manufacturing, although the rate of growth may start slowing later this year. The March 2011 composite index fell slightly to 72% from 75% in the December 2010 report. This is the sixth consecutive quarter the index has been above the 50% threshold, the dividing line that separates contraction and expansion.
Highlights of the survey include:
- Quarterly orders index, based on a comparison of expected orders in the first quarter of 2011 with those in the same quarter one year ago, increased to 91% in March from 87% in December.
- U.S. investment index was 79% percent, a nominal retreat from 81% in the previous survey. It is based on expectations of executives regarding domestic capital investment for 2011 compared to 2010.
- Non-U.S. investment index was a solid 79% in March compared to an already strong 75% in December.
- R&D index was 75% in March, slightly above the 73% in the December report. It reflects the views of survey participants regarding R&D spending in 2011 compared to 2010.
- The U.S. prospective shipments index, which reflects expectations for second quarter 2011 shipments compared with the second quarter of 2010, edged up to 89% in the March survey from 88% in the December report.
- Annual orders index remained at 90% from the December to the March survey.
- Export orders index stayed at 80%.
- Backlog orders index held steady at 83%.
- Inventory index increased to 79% in March from 69% in December.
- Profit margin index fell to 76% in March from a very strong 85% in December.
- Capacity utilization index slipped to 30.7% in the current survey from 33.3% in December. It is based on the percentage of firms operating above 85% of capacity.
Respondents were asked about their outlook for, and impact of, rising commodity prices. Slightly more than half, 54.7%, expect prices will rise moderately throughout the year while 37.5% expect prices will rise initially before leveling off. Prices of oil and petroleum products, named by 37.3% of the participants, are expected to experience the largest increases, followed by steel at 25.4%.
Fifty percent of the respondents indicate that rising commodity prices are having a “moderate” to “significant” impact on profit margins. Most companies (82%) are not increasing inventories of commodities whose prices are expected to increase this year, while 26.2% are purchasing futures contracts as a hedge against future increases in commodity prices. ◆