MAPI Business Outlook: Slight improvement in composite index

Composite index edges up to 58 from 56—15th straight quarter above 50 and 2nd consecutive advance; Senior financial executives surveyed on healthcare reform.

By ·

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.

Current Business Condition Indexes:
The Backlog Orders Index, which compares the second quarter 2013 backlog of orders with that of one year earlier, jumped to 54 in June from 43 in the March report.
The Current Orders Index, a comparison of expected orders in the second quarter of 2013 with those in the same quarter one year ago, improved to 53 from 47.
The Inventory Index, based on a comparison of inventory levels in the second quarter of 2013 with those in the second quarter of 2012, advanced to 51 in June from 48 in March.
The Capacity Utilization Index, which measures the percentage of firms operating above 85% of capacity, rose marginally to 21.2% in June from 20.7% in March. It is still below the long-term average of 32%.
The Export Orders Index, which compares exports in the second quarter of 2013 with those in the same quarter in 2012, remained flat at 45.
The lone decrease among current indicators was in the Profit Margin Index, which fell to 56 in June from 62 in March.

Forward Looking Indexes:
There were increases in five of the seven forward looking indexes.
The Interest Rate Expectations Index climbed to 81 from 58, indicating that a growing majority of respondents believe that longer-term interest rates will rise by the end of the third quarter of 2013.
The Prospective U.S. Shipments Index, which reflects expectations for third quarter 2013 shipments compared with those in the third quarter of 2012, rose to 67 in June from 61 in March. The Prospective Non-U.S. Shipments Index, which measures expectations for shipments abroad by foreign affiliates of U.S. firms for the same time frame, advanced to 60 in the current report from 53 in the March survey.
The Research and Development Spending Index was 73 in the June report, an increase from 68 in March, and compared spending for the years 2012 and 2013.
The two investment indexes were split. The U.S. Investment Index is based on executives’ expectations regarding domestic capital investment for 2013 compared to 2012. The index was 65 in June, a slight increase from 64 in the March survey. The Non-U.S. Investment Index declined to 53 in the current report from 62 in March.
A minor area of concern was the Annual Orders Index, which is based on a comparison of expected orders for all of 2013 with orders in 2012; it decreased to 64 in June from 74 in March but remains at a relatively high level.
In a supplemental section, participants were queried on issues concerning healthcare reform.
Current sentiment seems to favor the status quo, with only 9% of the respondent firms indicating they are considering eliminating healthcare plans and directing employees to exchanges. Approximately one-third reported considering eliminating higher-cost (“Cadillac”) healthcare options.
Close to one-fourth of the companies have considered or are considering plans in which premiums paid by employees vary with their level of compensation.
 
MAPI’s Composite Business Outlook Index (see chart below) is a 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.

null


About the Author

Josh Bond, Senior Editor
Josh Bond is Senior Editor for Modern, and was formerly Modern’s lift truck columnist and associate editor. He has a degree in Journalism from Keene State College and has studied business management at Franklin Pierce University.

Subscribe to Modern Materials Handling Magazine!

Subscribe today. It's FREE!
Find out what the world’s most innovative companies are doing to improve productivity in their plants and distribution centers.
Start your FREE subscription today!

Article Topics

Economy · MAPI · · All Topics
Latest Whitepaper
Your Guide to Voice for the Warehouse
Is voice a good fit for my operation? How would voice work in my warehouse? With the help of the Vitech Guide to Voice, you can find all the answers to your voice questions in one place.
Download Today!
From the October 2017 Modern Materials Handling Issue
An early adopter, Rochester Drug Cooperative is using robotic piece-picking technology to complement picking of slow-moving items. System report for Rochester Drug Cooperative, Robotic picking and inventory management, Innovative distribution center robotics solutions , IAM Robotics case study
Injecting agility into WMS implementation
The Big Picture: Business as Unusual
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
The State of the DC Voice Market
A lot has changed in the last 10 years, especially in voice technology. This webinar will cover the state of the voice market, review two leading voice solutions and help you gain a better understanding of the options and capabilities available today.
Register Today!
EDITORS' PICKS
Rochester Drug Cooperative: Robots ready for work
It’s still early stages, but Rochester Drug Cooperative is proving that mobile robotic piece...
Manufacturing Day: 2,716 events from Hawaii to Alaska to Puerto Rico
Events to be scheduled throughout the month, so the remaining 249,185 manufacturing firms in the...

System Report: Pouch sorter powers Stage’s fulfillment needs
How a hometown department store chain transformed its e-fulfillment processes with pouch sortation...
Cubing and Weighing Equipment: Measure Up
The use of cubing and weighing equipment is growing beyond dimensional weight applications.