Manufacturing News

US’s manufacturing index best since June 2007

The US Manufacturers Alliance/MAPI composite index for June 2009 rose to 24 from an historic low of 21 reported in the March 2009.

While the index is at its second lowest level since the survey originated in March 1972, it marks the first time it has shown improvement since June 2007.

The June 2009 index of 24 marks the fourth consecutive quarterly reading below 50, the demarcation point between growth and contraction, and pales in comparison to one year ago when the June 2008 index registered at the 50 mid-point.

Economists say the small rise in the composite index and the improvement in a few of the individual indexes indicate that the manufacturing sector is no longer in a freefall.

Among the variety of indexes that the group measures, the inventory index dropped to 15% in June from 37% in March, indicating that manufacturers are making substantial progress in paring an inventory overhang.

The non-US prospective shipments index, which measures expectations for shipments abroad by foreign affiliates of US firms in the third quarter of 2009 compared to the same quarter of 2008, rose to 15% from 8%. And the export orders index increased to 11% in June from 8% in the March survey.

Other highlights include: The profit margin index fell to 18% in June compared to 19% in the March report, marking the seventh straight quarter of decline.

The US investment index, which queried executives on their expectations regarding capital investment in 2009 compared to 2008, held steady at 14% in June from the March report.

The backlogs index fell to 9% from 15% in the March survey. The research and development (R&D) index fell to 38% in June compared to 41% in March.

The capacity utilization index, based on the percentage of firms operating above 85% of capacity, fell to 8.1% from 10.5% three months ago.

The non-US investment index, which asks about companies’ plans in 2009 for capital spending outside the US, dropped to 13% from 14%. The annual orders index, based on a comparison of expected orders for all of 2009 with orders in 2008, retrenched to 6% in June from 7% in the March survey.

The US prospective shipments index, which reflects expectations for third quarter 2009 shipments compared with the third quarter of 2008, slipped to 4% in the June survey compared to 5% in the previous report.

The second part of the survey focused on trends in inventories and the costs and challenges of an inventory overhang. It found that the problem of inventories erupted during the last four months of 2008.

It presently takes an average of 62.9 days for companies to sell their inventories compared to 56.6 days in 2008, and inventory costs average 21.9% of sales.

The major barrier to reducing inventories is the difficulty of forecasting sales, and inventory overhang is less of a problem in India and Latin America than in the US and Western Europe.

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