The already battered manufacturing base appears headed for further decline, according to the latest Manufacturers Alliance/MAPI survey. The March 2009 composite index registered a drop to 21 from the previous historic low of 28 reported in the December 2008 report. At this level, the index indicates that overall manufacturing activity is expected to contract over the next three to six months.
The March 2009 survey marks the third consecutive quarterly reading below 50, the demarcation point between growth and contraction, and lies in stark contrast to an index of 57 just one year ago.
Highlights of the study include:
- The non-U.S. investment index, which asks about companies' plans for capital spending outside the U.S. in 2009, experienced the most precipitous drop, falling from 40% to 14%.
- The profit margin index fell to 19% in March compared to 43% in the December report, marking the sixth straight quarter of decline.
- The non-U.S. prospective shipments index, which measures expectations for shipments abroad by foreign affiliates of U.S. firms in the second quarter of 2009 compared to the same quarter of 2008, fell to 8% from 27%.
- The export orders index, which measures how first quarter 2009 exports compare with those of first quarter 2008, declined to 8% in March from 25% in the December survey.
- The capacity utilization index, based on the percentage of firms operating above 85% of capacity, fell to 10.5% in the current survey from 26.7% three months ago.
- The U.S. investment index, which queried executives on their expectations regarding capital investment in 2009 compared to 2008, decreased to 14% in March 2009 from 30% in the prior survey.
- The inventory index, based on a comparison of inventory levels in the first quarter of 2009 with those of one year ago, dropped to 37% in March from 50% in December.
- The quarterly orders index, which compared new orders for the first quarter of 2009 with the same quarter one year ago, retrenched to 4% from 15% in the previous survey.
- The annual orders index, based on a comparison of expected orders for all of 2009 with orders in 2008, tumbled to 7% in March from 16% in the December survey.
- The U.S. prospective shipments index, which reflects expectations for second quarter 2009 shipments compared with the second quarter of 2008, declined to 5% in the March survey compared to 14% in the December report.
- The research and development (R&D) index asked respondents for their forecast regarding R&D spending in 2009 compared to 2008. The R&D index fell to 41% in March as compared to 50% in December.
- The backlogs index, which compared the first quarter 2009 backlog of orders with the backlog of orders one year earlier, fell to 14% from 21% in the December survey. An accumulation of backlogs usually occurs when new orders exceed shipments. A decrease in backlogs is yet another indication that overall manufacturing activity will fall over the next three to six months.
In reply to a related query on the recession and the outlook for recovery, more than 90% of the companies indicated that they are reducing their workforce and/or hours, capital expenditures, and/or travel.
As to potential indicators of a recovery, 30% of the respondents said it would be new orders/sales while 18.3% said it would be an increase in housing starts/home sales. More than three-fourths of the senior financial executives, 77.8%, believe the recovery will be "gradual and weak." Most, 60.3%, think the new federal stimulus package will be "slightly effective" in regards to an economic reversal, while 31.7% do not envision that the federal stimulus will be effective.
