The Economy

Slower Growth Foreseen For Manufacturing

July 13, 2006

Manufacturers Alliance slips three percentage points.

Consistent with slower overall domestic economic growth, the manufacturing sector of the U.S. economy will likely continue to expand during the next three to six months, but at a slower rate than it did during the first six months of 2006, indicate data released July 13 by the Manufacturers Alliance/MAPI, an Arlington, Va.-based business and public policy research group.

The alliance's composite business outlook index in June was at 71, three percentage points lower than the 74 reported in March. "The decline in the index points toward continued expansion, but at a slower rate than was observed during the first half of the year," states Donald A. Norman, the alliance economist who oversees the membership survey from which the composite index and several individual indexes not included in the composite index are compiled. "These indexes remain at relatively high levels and indicate that most senior financial executives who responded to [the most recent] survey expect continued growth over the next three to six months," says Norman. Sixty senior financial executives participated in the most recent survey, which was completed on June 30.

A composite index figure above 50 indicates that the manufacturing sector generally is expanding; a figure below 50 signals the sector is contracting.

The composite index is a weighted sum of manufacturers' prospective shipments, backlogs, inventories and profit margins.

The prospective shipments segment, which compares expected quarterly shipments with actual quarterly shipments a year ago, decreased to 83% in the June alliance survey, down from 90% in March. "The index remains at a relatively high level, and shipments, in most industries, are expected to increase on a year-over-year basis," adds Norman. Indeed, although somewhat fewer than in March, 73% of the executives in the June survey still expected shipments to increase; only 7% expected them to decrease.

The backlogs index, which compares new orders with shipments, fell two percentage points between March and June, slipping to 75% from 77%. But as a business marker, it "remains at a high level," stresses Norman. The alliance economist notes that the index has exceeded 70% for every calendar quarter since December 2003.

Although manufacturers' inventories are higher now than a year ago, companies appear increasingly to be disciplining their stock. The alliance's inventories index fell to 62% in June from 67% in March, the first quarterly decline in since June 2005.

Finally, the profit margin index, the fourth component of the composite business activity index, fell to 74% in the June survey from a record high of 82% in March. "Although the index fell, the profit margins for most companies are higher on a year-over-year basis," judges Norman.

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.