MAPI Quarterly Business Outlook: Manufacturing output positive despite global concerns

A nearly two-year upward trend in the manufacturing sector experienced a hiccup according to the quarterly MAPI Foundation Business Outlook as the composite index slipped from 71 to 67 in the third quarter.

The survey’s composite index is a leading indicator for the manufacturing sector, and is conducted by the MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation.

October’s index ended a run of six quarters of incremental improvement. Still, it marked the 20th consecutive quarter the index has remained above the threshold of 50, the dividing line separating contraction and expansion.

In a recent interview, Donald A. Norman, Ph.D., MAPI Foundation director of economic studies and survey coordinator, said the first quarter of 2014 had not been all that strong, but most indicators showed a particularly strong second quarter. “Month to month, we’re still going to see stop and go activity,” He said. “It’s just not all that smooth, and that’s been a characteristic for a while. But the results still point to continued new growth, albeit at a modest rate.”

The survey results and the index are based on objective order volumes, but Norman also includes some qualitative questions as a supplement to the survey. This year he asked about global risks, about which there was no shortage of headlines this year.

The region where respondents reported the greatest risk to operations is Ukraine and Russia. Other issues posing at least a slight risk to companies relate to Israel/Palestine, ISIS in Iraq, Syria, Ebola and terrorism in Africa, the military coup in Thailand, and the China/Japan island disputes.

“I think with all the news that’s happened over the last few months, we’re in a period in which lots of risks that weren’t apparent before are making themselves known,” Norman said. “About 65% said they are working to minimize ‘trapped’ cash and half are concerned with providing enhanced security for employees throughout the world. The survey response shows that companies are focused on those things, which are much more present in their minds.”

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 the report, the views of 47 senior financial executives representing a broad range of manufacturing industries are segmented into 12 individual indexes split between current business conditions and forward looking prospects. Of those 12 indexes, 3 increased, 8 declined, and 1 stayed flat.