A number of economic signs indicate optimism in the US manufacturing sector during the next three to six months, according to a quarterly report issued this month by the Manufacturers Alliance for Productivity and Innovation (MAPI).
The September 2013 composite index, the leading indicator for the manufacturing sector, increased to 66, up from 58 in the June survey. It was the third consecutive quarterly increase in the composite and the highest level since December 2011, when it also was 66. The MAPI composite index has been above the threshold of 50 — the dividing line between expansion and contraction — for the past 16 quarters.
The composite index is based on the weighted sum of prospective US shipments, backlog orders, inventory and profit margin indexes. It also takes into account the results of survey of 51 of the leading manufacturing financial executives.
Donald A. Norman, MAPI’s senior economist and survey coordinator, said the report was cause for optimism, at least in the short term.
“In particular, the large increase in the composite index and the jump in the US prospective shipments and the backlog orders indexes point to an increased pace of manufacturing activity in the fourth quarter, Norman said.
Among the reports findings were:
- Annual Orders Index — This index is based on a comparison of expected orders for all of 2014, compared to 2013. It increased to an astonishing 81 in September, compared to 64 in June.
- Current Orders Index — This index, which compares expected orders in the third quarter of 2013 with those in the third quarter of last year, was up to 70 from 53 last quarter.
- Export Orders Index — This index, which measures the same time frame, rose to 68 in September, up from 56 in June.
- Profit Margin Index — Up from 56 in June to 68 in September.
- Capacity Utilization Index — This index measures the percentage of firms operating at 85% capacity and above. It increased to 30% in September from 21.1% in June. The long-term average is 32.0%.
- Backlog Orders Index — This index compares the backlog of orders in the third quarter with the same quarter last year. It rose to 59 this quarter, up from 54 last quarter.
- Inventory Index — This is based on a comparison of quarterly inventory levels year over year. It dropped to 49 in September, compared to 51 in June, suggesting that manufacturers are neither drawing down nor building up inventories at significant levels.
- Prospective Non-US Shipments Index — This measures expectations for shipments abroad by foreign affiliates of US firms. It was up to 70, compared to 60 last quarter.
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