MAPI: Information for Manufacturers

2/2/2012

MAPI Analysis on ISM Index: Factory Sector is a ‘Stabilizing Force’ for U.S. Economy

The following is an analysis from Cliff Waldman, Economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), regarding the Institute for Supply Management index for January 2012:

“The unequivocally positive January report on U.S. manufacturing activity from the Institute for Supply Management adds to a volume of evidence on the factory sector’s role as a stabilizing force for a still weak and uncertain U.S. economic rebound,” Waldman said. “The overall ISM index rose by a full percentage point from December levels to 54.1 percent. In its 30th month of expansion, U.S. manufacturing shows steady if somewhat slowing advances. New orders for manufactured goods accelerated significantly but production slipped by more than the growth in new orders. Employment appears to have moderated a bit.

”Positive readings on the backlog of orders and on export demand certainly suggest few impediments to the persistence of the factory sector’s recovery from a deep downturn,” Waldman added. “Nonetheless, the sluggishness in overall U.S. economic growth, the risks from a difficult economic and financial climate in the Eurozone, and clear signs of a broad slowing in world economic activity all suggest moderate U.S. manufacturing output advances with downside risks throughout much of 2012.”

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1/31/2012

Issues in Brief: Is China the Largest Manufacturer in the World?

By: Daniel J. Meckstroth, Ph.D.
Chief Economist and Director of Research
dmeckstroth@mapi.net

World Rankings
According to recently published data from the United Nations, the fear that China will displace the United States as the world's largest manufacturing nation has been realized. Manufacturing value-added in China totaled $1.92 trillion in 2010 while U.S. manufacturing value-added was $1.86 trillion.^[1] China therefore accounted for 18.7 percent of world manufacturing in 2010 while the U.S. share was 18 percent. When measured in terms of U.S. dollars, China is the largest manufacturing nation in the world.

China's ascent in manufacturing importance has been in the making for decades. Table 1 shows the top 15 manufacturing countries based on the dollar value of manufacturing value-added at the beginning of the last three decades. By this method, China was the seventh largest manufacturing economy in 1990, third in 2000, and number one in 2010. Interestingly, several other emerging economies are also rising in the ranks of global manufacturing: Brazil was 11th in 1990 and then jumped to 6th in 2010; South Korea rose from 12th to 7th; and India went from 15th to 10th.

Table 1 – Top 15 Largest Countries in the World for Manufacturing Value-Added
(Valued in U.S. dollars)

Source(s): United Nations and MAPI

Composition of the Growth
China's leap to the top came through a combination of price increases, exchange rate appreciation, and an extremely fast growth rate in the physical volume of manufacturing value. In the last decade, the nation saw increases at an annual rate of a modest 1 percent for prices, 2 percent for the yuan, and very strong 11.4 percent for physical volume. Multiplying these changes together produces a 14.8 percent per year change in the dollar value of Chinese manufacturing value-added during the 10 years ending in 2010. At that pace, China's manufacturing value-added almost quadrupled in a decade, a speed of growth that dwarfed what was achieved in the United States. U.S. manufacturing value-added expanded at only a 2 percent annual rate over the same period (0.4 percent for prices and 1.6 percent for physical volume).

The other emerging countries in the world rankings achieved their gains in differing combinations of price, currency appreciation, and physical growth. South Korea achieved a 7.6 percent annual rate of growth in manufacturing value-added from 2000 to 2010. Similar to China, the gain came primarily from growth in physical volume. Inflation-adjusted manufacturing value-added increased at a 6.3 percent annual rate, price increases averaged only 1.5 percent a year, and there was virtually no currency adjustment.

India achieved outsized expansion with strong physical growth and higher inflation, and the manufacturing value-added increased 12.7 percent a year in the decade ending in 2010. The composition of that dollar-based growth in annual rates was 4.7 percent for inflation, virtually no currency adjustment, and stellar 7.8 percent growth in physical volume.

Brazil experienced an increase of 11.3 percent a year from 2000 to 2010, but this jump in dollar-denominated manufacturing value-added growth came primarily from inflation. The country had a large 8.3 percent annual inflation, 0.4 percent annual currency appreciation, and only relatively modest 2.4 percent a year increase in physical volume.

Normalizing the Comparison
China is a large, rapidly emerging, densely populated country. It is inevitable that the country would compare more favorably with the United States, a large, advanced, lightly populated country growing at a relatively modest pace. Rather than using total manufacturing value-added, a more relevant analysis of very different economies involves normalizing the comparisons based on the size of the respective populations. In other words, divide total manufacturing value-added by the size of the population to get a per capita figure.

Per capita manufacturing value-added is a better way to show the manufacturing intensity of a country. As seen in Figure 1, there is a dramatic reordering when the per capita measurement is used. The most manufacturing-intensive countries (among the 15 largest manufacturing countries in the world) are Japan ($8,566 per capita) and Germany ($7,463). The United States ($5,980) is third and South Korea ($5,799) is fourth.

Figure 1 – Per Capita Manufacturing Value-Added, Top 15 Manufacturing Countries, 2010
Figure 1 –Per Capita Manufacturing Value-Added, Top 15 Manufacturing Countries, 2010
Source(s): United Nations and MAPI

China ($1,459) has a much lower stature in world manufacturing when using a per capita comparison, ranking 12th. With its 1.318 billion people, China had more than four times the population of the United States (310 million) in 2010 but only a slightly larger manufacturing value-added. Brazil ($1,445) is only somewhat less manufacturing intensive than China and ranks 13th. India, the second largest country in the world in terms of population (1.225 billion people in 2010) is the 10th largest manufacturing economy but has a manufacturing intensity of a very low $185 per person.

There is a tendency to take too narrow of a view when calculating whether China has the largest manufacturing economy in the world. China's currency appreciation gave it a boost in surpassing the United States in the 2000s; however, when manufacturing value-added is normalized into a per capita metric, the nation's rank among global manufacturers falls to 12th. China's manufacturing performance should not be understated, either—it has demonstrated an incredible ability to grow its physical volume of manufacturing very rapidly. And the Chinese have a plan to continue moving up the manufacturing intensity ranks in the next decade.^[2]

Footnotes

^[1] The statistics are estimated by the United Nations based on the international classification of manufacturing (ISIC D); http://unstats.un.org/unsd/snaama/selectionbasicFast.asp.

^[2] Willy C. Shih, China's Five Year Plan, Indigenous Innovation and Technology Transfers, and Outsourcing, testimony before the U.S.-China Economic and Security Review Commission, June 15, 2011, www.uscc.gov/hearings/2011hearings/written_testimonies/11_06_15_wrt/11_06_15_shih_testimony.pdf.

** Members - click here for a PDF version of this article and
click here for the PowerPoint slide. **

Posted at 7:38 AM by 57865 | Category: Issues in Brief | Permalink | Email this Post

1/27/2012

MAPI Launches Sustainability Council

The Manufacturers Alliance for Productivity and Innovation (MAPI) has announced the launch of a Sustainability Council. The Sustainability Council provides a forum for senior executives of MAPI member companies to discuss the various aspects of corporate sustainability, including product stewardship, energy and water management, carbon footprinting, and corporate social responsibility issues. Members will gain significant value from collegial, vendor-free meetings twice a year, ongoing electronic communication through a dedicated Council web page and opportunities for member-directed surveys and research.

The Sustainability Council grew out of a highly successful forum in which a number of hot topic issues were presented, among them: Comprehensive Sustainability Metrics: The New Bacardi Model; Engineering Sustainability into Product Design; Supply Chain Sustainability—Implementing a Corporate Strategy; Product End of Life Sustainability Efforts; and Effectively and Appropriately Marketing Sustainability.

In addition, forum participants discussed a number of topics, including: organizational structures to address sustainability; engaging employees in energy management; effectively measuring and reporting on sustainability efforts; engaging with suppliers to ensure sustainability; and initiatives used to increase sustainability in manufacturing.

“There is much momentum for this topic within the manufacturing community and elsewhere,” said Rae Ann Johnson, MAPI Attorney and Sustainability Council Director. “The Sustainability Council will help our members identify best practices and lessons learned, and provide them with valuable insight as they assess, plan and implement sustainability initiatives and measurement within their corporate planning.”

The inaugural meeting will be held Thursday-Friday, March 29-30, 2012, in Cleveland, OH.
For more information contact Rae Ann Johnson at rjohnson@mapi.net or at 703.647.5118.

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1/26/2012

MAPI Analysis on Durable Goods: Tenor of Report Positive for U.S. Manufacturing

The following is an analysis from Cliff Waldman, Economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), regarding the durable goods report for December 2011:

“Like other recent data, the December 2011 report on demand for long-lasting goods paints a picture of an economy that ended a volatile and challenging 2011 on a positive note,” Waldman said. “Total new orders, now up during five of the last six months, increased a strong 3 percent after an even stronger 4.3 percent advance in November and for the year registered a solid 10 percent gain over 2010 levels. Excluding the often volatile transportation component, orders were up a more modest 2.1 percent in December but were nonetheless a nice acceleration from a weak 0.5 percent increase during the previous month. Even more encouraging were the data on new orders for nondefense capital goods excluding aircraft. A widely accepted proxy for business equipment investment, this indicator had been flashing clear signs of slowing in recent months but increased a significant 2.9 percent in December and, like total new orders, was up by 10 percent for the year as a whole.

“The sharp positive turn in equipment spending during December might very well have been motivated by concerns about the expiration of equipment expensing provisions,” Waldman added. “But the tenor of the December report was positive overall for U.S. manufacturing strength, with strong gains in such sectors as machinery and primary metals. However, given the spate of data-distorting events that occurred during 2011, from the Japanese earthquake to unnerving fights over the U.S. debt ceiling, the December numbers are not necessarily indicative of a sea change in the U.S. outlook, especially in light of clear evidence of widespread slowing in global growth. The most likely forecast for U.S. manufacturing is for positive but moderating output growth.”

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1/25/2012

MAPI’s Gold on the State of the Union Address: Leaders ‘Finally Recognizing’ Critical Role of Manufacturing

Stephen Gold, president and CEO of the Manufacturers Alliance for Productivity and Innovation (MAPI), offered this response to President Obama’s State of the Union address:

“After years of public officials ignoring or even writing manufacturing off, our national leaders are finally recognizing the critical role the factory sector continues to play in innovation, creating jobs, and raising living standards. MAPI applauds the President for shining a primetime spotlight on American manufacturing.

President Obama expressed a strong interest in devising ways to maintain and increase the domestic manufacturing base. The key is to create policies that make US investment and production more alluring – and, as our research has shown, nothing would do more to achieve this goal than reducing the rates and complexity of the current federal corporate tax code.

Considering the economic and financial challenges Americans still face, we do not have the luxury of waiting until after the 2012 elections. MAPI encourages the President and Congress to set aside their differences and start working immediately to develop a federal tax code that encourages investment and production in this country.”

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1/24/2012

Issues in Brief: Manufacturers’ Response to the Global Epidemic of Counterfeit Products

By: Cam Mackey
Vice President, Sales and Marketing
cmackey@mapi.net

We've all seen deals too good to be true: an Hermès Birkin bag going for $100, a free download of Windows 7, or that $99 iPad. Deep down we probably know that these can't possibly be genuine products, but sometimes a deal is just too good to pass up. This is unfortunately an all too common sentiment: nearly 80 percent of consumers don't see anything wrong with buying counterfeit products.

In some cases, the risks to the customer of buying a fake product are minimal. Let's take our example of the Birkin bag. Here, the stitching fails and the customer loses her favorite lipstick—not exactly a disaster. Perhaps the fake iPad catches on fire while charging, though, and the pirated software has a Trojan in it that steals banking passwords. The risks can start to get serious.

Taken to the next level, what if a contractor installs counterfeit circuit breakers in your office building? The costs, both human and financial, can be catastrophic. The International Chamber of Commerce estimates the annual global cost of counterfeit products to be over $600 billion (a figure that some say is too conservative), and the World Trade Organization has said that the proliferation of fake anti-malaria drugs kills 100,000 Africans annually. While some industries have a higher risk profile than others, this problem is only getting worse, suggesting that all manufacturers should have at least basic anti-counterfeiting measures in place.

In a recent survey of 60 executives from several MAPI councils, 40 percent of respondents said that counterfeit versions of their products are a significant problem. But as one R&D executive told us, "It's hard to put a value on the true cost of counterfeiting, since the degree is only what you are aware of and what you find." Counterfeiting is a global issue, too. The survey found that 80 percent of members have seen counterfeit versions of their replacement parts in Asia (excluding China/India), 79 percent in Mexico, 75 percent in North America, and 72 percent in China. In fact, two-thirds of IP-infringing products seized last year by U.S. Customs originated in China.

Troublingly, members believe that one-third of their customers have knowingly bought a counterfeit version of their products and felt that the quality was "good enough." According to a member sales executive, "We view any counterfeiting as a significant risk to customers' health and safety and therefore a product liability issue."

Half of the members for whom counterfeiting is a significant problem have a formal department (or task force) that deals with counterfeit and gray market matters. While a few members have dedicated headcount to anti-counterfeiting efforts, most have just added the responsibilities to pre-existing positions. The most common department to house the responsibilities is Legal, followed by Marketing. Unfortunately, most manufacturers have few metrics in place. Only 35 percent of companies for which counterfeiting is a significant issue have related effectiveness metrics. Further, while members told us the best technique to combat counterfeiting is partnering with law enforcement, this was the tactic least utilized by respondents.

Members suggested several highly effective practices to combat counterfeiting, including:

Focus on innovation to stay ahead of counterfeiters. Time and time again, members said that one of the best ways to avoid counterfeiters was to out-innovate them. Produce highly engineered products that are hard to replicate. One marketing executive said, "Our strategy is to continue to develop new products faster than previous generation products can be copied."
Use innovative packaging and marking technologies. Members like DuPont and Brady offer sophisticated anti-counterfeiting and brand protection technologies that are difficult or impossible to reproduce.
Give customers and end-users easy access to counterfeit fact sheets. An educated consumer is your best ally. Siemens and GE Energy have great examples on their websites. Where possible, messaging should focus on the greatest deterrent to buying counterfeit: potential health risks.
Partner with industry associations. Counterfeiting is a systemic, structural problem, and can't be tackled by one company going it alone. Members like Timken, SKF, and Schaeffler support the World Bearing Association's Stop Fake Bearings website.
Establish early warning systems. One member operates an anonymous counterfeit hotline that can get information to the right people quickly. To build awareness, several members have launched educational campaigns to keep sales and service organizations attuned to the existence of counterfeit products. A division president told us, "We have built a high awareness level, so that any counterfeits coming to us by accident as repairs or returns are quickly identified."
Respond quickly and aggressively to counterfeit operations (or gray market selling). As one division president said, "We take each occurrence very seriously, penalize the distributor, and warn our customers to be careful as the parts are not genuine and no warranties from our company will be honored." Another marketing chief put it more succinctly: "Each time we discover such activity, we turn on the lights and watch the bugs scatter to the shadows."

** Members - click here for a PDF version of this article. **

Posted at 8:50 AM by 57865 | Category: Issues in Brief | Permalink | Email this Post

1/23/2012

MAPI Report: 2011 NLRB Decisions Will Have Important Effects on Union Activities

In August 2011, the National Labor Relations Board (NLRB) issued a series of four important decisions that in combination substantially enhanced the ability of unions to organize employees and provided greater protection of unions’ new or established bargaining unit representative status. In each of these cases, the Board reached its result by overturning prior Board decisions, some of which had been issued only a few years earlier.

In The NLRB’s Precedent-Overruling Decisions on Union Organizing and Bargaining Unit Representative Status: Policy Implementation or Legal Analysis? (PA-102), Les Miller, Manufacturers Alliance for Productivity and Innovation (MAPI) Senior Attorney, reviews the four cases: Specialty Healthcare and Rehabilitation Center of Mobile; Lamons Gasket Company; UGL-UNICCO; and Stericycle, Inc.

Miller writes that with these changes unions can leverage success in organizing small bargaining units to provide a platform for far broader organizing efforts.

In addition, once unions achieve incumbent representative status, they will have a broader shield from a challenge by an employer, rival union, or unit employees.

To access the report, click here.

Posted at 11:58 AM by 37584 | Category: Legal and Regulatory | Permalink | Email this Post

1/18/2012

MAPI Analysis on Industrial Production: ‘Encouraging End’ to 2011

The following is an analysis from Daniel J. Meckstroth, Ph.D., Chief Economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), regarding the industrial production report for December 2011:

“The Federal Reserve announced today that industrial production increased 0.4 percent in December. Manufacturing production increased 0.9 percent while electric utilities saw a 2.7 percent decline, but mining industries increased 0.3 percent,” noted Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance for Productivity and Innovation (MAPI). “The outsized gain in manufacturing production in December more than offset the 0.4 percent decline in manufacturing production reported in November. In the fourth quarter of 2011, manufacturing production increased at a 3.9 percent annual rate from the previous quarter and manufacturing production grew 4 percent in 2011 compared to 2010.

“Manufacturing experienced strong growth in December and was distributed across many industries within the sector,” Meckstroth added. “Fourteen major manufacturing industries grew while only six industries declined in December. The increases were significant in both the durable goods (0.9 percent) and nondurable goods sectors (0.8 percent). The December industrial production report is an encouraging end to the year as the U.S. outlook is racked with uncertainty. Europe, a major export market, has likely slipped into another recession and there is much uncertainty concerning the possibility of contagion from the European banks, risks of public policy mistakes, and a crisis of confidence here in the United States.

“MAPI believes that the U.S. economy will grow at a modest 2.1 percent pace in 2012 and manufacturing production will increase at a faster 3.4 percent growth rate,” he concluded. “The superior growth in manufacturing comes from pent up demand for motor vehicles, the need to upgrade business equipment, and more investment in energy and mineral exploration.”

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1/17/2012

Issues in Brief: Department of Labor Expands SOX Whistleblower Protection

By: Leslie D. Miller
Senior Attorney
lmiller@mapi.net

The U.S. Department of Labor recently issued a final decision through its Administrative Review Board (ARB) in a case where an employee reported a conflict in his employer's document retention policies. The ARB decision expanded the interpretation of the anti-retaliation protection that the Sarbanes-Oxley Act of 2002 (SOX) provides to whistleblowers. The decision is Prioleau v. Sikorsky Aircraft Corp., DOL ARB, No. 10-060 (2011)(Prioleau). Section 806 of SOX prohibits public companies subject to SOX from retaliating against employees (through such actions as discharge, demotion, or suspension) for providing information or assisting in investigations related to certain types of fraudulent acts. For an employee to be protected under Section 806, he or she must have reasonably believed that they were giving information about a violation of the federal fraud statutes, any rule of the Securities and Exchange Commission (SEC), or any provision of federal law related to fraud against shareholders. The issue before the ARB in Prioleau was whether the employee seeking whistleblower protection could have reasonably believed he had reported information covered under Section 806.

Keith Prioleau worked for 10 years as a systems engineer for Sikorsky Aircraft Corporation (Sikorsky), a subsidiary of United Technologies Corporation (UTC). Prior to his employment with Sikorsky, Prioleau was a computer scientist for Computer Sciences Corporation (CSC), where he was part of a team that helped design UTC's computer infrastructure. In June 2009, Sikorsky's legal department sent an email to Prioleau and other salaried Sikorsky employees stating that certain electronically stored information (ESI) should be retained when the legal department issued a legal hold notice for that information in specific circumstances. Those circumstances were when ESI was needed in connection with pending or anticipated litigation, government or internal investigation, or a subpoena. A few days later, Prioleau received an email from CSC, warning that there was a UTC retention policy. This policy consisted of a software application that automatically placed emails older than 30 days in a folder where they would be automatically deleted after 21 days.

Two days after receiving the CSC email, Prioleau electronically submitted a report that explained that the ESI retention policy and UTC retention policy conflicted with each other and that a procedure needed to be implemented to resolve the conflict. The report did not mention fraud or violations of the securities laws. The next day he went on authorized leave and when he returned to work two weeks later, his employment was immediately terminated.

Prioleau subsequently filed a SOX whistleblower complaint with the Occupational Safety and Health Administration (OSHA) within the Department of Labor (the agency with jurisdiction to enforce various federal whistleblower provisions, including Section 806 of SOX). He alleged in his complaint that Sikorsky had unlawfully retaliated against him for reporting violations of shareholder fraud and of Section 404 of SOX requiring companies to assess their internal controls. He mentioned in his complaint that based on the SOX training he received from Sikorsky and his experience in information security controls and audit, it was clear to him that he was dealing with a SOX internal controls issue. OSHA staff dismissed the complaint upon finding that Prioleau did not engage in protected activity. On further review, an OSHA administrative law judge (ALJ) affirmed the staff's findings, observing that Prioleau had not alerted Sikorsky in his report of any suspected fraud against shareholders. Prioleau then filed an appeal to the ARB.^[1]

Two of the three administrative appeals judges on the ARB panel issued a majority opinion reversing the ALJ. They found that the ALJ erred in finding that the protected activity must relate to shareholder fraud. They noted that the language of Section 806 protects employee complaints about fraud falling into six categories, only one of which is shareholder fraud. In addition, they said that the analysis the ALJ should have undertaken was to determine whether Prioleau reasonably believed that he reported a violation of the Securities and Exchange Act to Sikorsky. The majority observed that with his SOX training, past involvement in an internal audit in preparation for SOX compliance, and experience in information technology, Prioleau could have a reasonable belief that the conflict between the legal hold and automatic deletion policies could potentially lead to fraudulent financial reporting in violation of the securities laws. The majority remanded the case back to the ALJ to conduct an evidentiary hearing in which Prioleau would have to submit factual proof showing he had a reasonable belief his report constituted protected activity.

Conclusion

The ARB's decision in Prioleau is significant because it demonstrates that SOX-protected whistleblower activity can extend to an internal report an employee submits to his or her employer about a policy conflict, even if it does not communicate a belief that any type of fraud has been committed or that SOX or the securities laws have been violated. Apparently, all that is necessary for SOX protection to apply is that the reporting employee has a reasonable belief that the policy conflict could lead to fraudulent financial reporting.

Footnotes

^[1] A decision issued by the ARB serves as the final decision of the Department of Labor. Further appeals must be pursued through federal courts of appeals.

** Members - click here for a PDF version of this article. **

Posted at 8:58 AM by 57865 | Category: Issues in Brief | Permalink | Email this Post

1/12/2012

MAPI Survey on the Business Outlook: Composite Index Slips Slightly; Current Outlook Challenging, Future More Positive

The results of the quarterly Manufacturers Alliance for Productivity and Innovation (MAPI) Survey on the Business Outlook—December 2011 (EO-101) indicate an overall picture of continued growth for the industrial sector, but at a more moderate pace during the first half of 2012.

The survey’s composite index is a leading indicator for the manufacturing sector. The December 2011 composite index fell slightly, to 66 from 67 in the September report, yet manufacturing’s staying power seems evident in the face of an uncertain economy. This is the ninth consecutive quarter the index has been above the threshold of 50, the dividing line that separates contraction and expansion. Despite the sixth straight decrease from the record high of 81 in June 2010, the index remains consistently high, averaging 70.8 during that period. The index started as a quarterly series in 1991.

“Despite the challenges posed by slower economic growth and continued problems in the construction and financial sectors, the manufacturing sector is the ‘Energizer Bunny’ of the U.S. economy,” said Donald A. Norman, Ph.D., MAPI Economist and survey coordinator. “Barring a meltdown in the Eurozone, the U.S. manufacturing sector should continue growing at a moderate pace heading into 2012.”

The composite business outlook index is a weighted sum of the U.S. shipments, backlog orders, inventory, and profit margin indexes. In addition to the composite index, which reflects the views of 64 senior financial executives representing a broad range of manufacturing industries, the survey includes 13 individual indexes that are split between current business conditions and forward looking prospects.
The six current business condition indexes all showed declines but remain at relatively high levels.

The quarterly orders index, based on a comparison of expected orders in the fourth quarter of 2011 with those in the same quarter one year ago, fell to 70 in December from 79 in the September survey. The export orders index, which compares exports in the fourth quarter of 2011 with the same quarter in 2010, was 71 in the current survey, moving down from 80 in September.

The backlog orders index, which compares the fourth quarter 2011 backlog of orders with the backlog of orders one year earlier, fell to 67 from 73 in the previous report; declining backlogs signal slowing activity. The profit margin index slipped to 70 in December from 74 in September.

Based on a comparison of inventory levels in the fourth quarter of 2011 with those in the fourth quarter of 2010, the inventory index decreased to 73 in December from 74 in September. Norman, however, views this as a relatively positive sign since it suggests that the steady inventory build observed over the past year is slowing.

The capacity utilization index, based on the percentage of firms operating above 85 percent of capacity, also showed some softening. It retrenched to 38.1 percent in December from 43.3 percent in September. Still, the index is well above the long-term average utilization rate of 32 percent.

There was, however, some improvement in the forward looking indexes.

The annual orders index, based on a comparison of expected orders for all of 2012 with orders in 2011, improved to 86 in December from 84 in September, thus remaining at a robust level. The U.S. prospective shipments index, which reflects expectations for first quarter 2012 shipments compared with the first quarter of 2011, advanced to 83 in December from 81 in the previous report.

The research and development (R&D) index surveys participants regarding R&D spending in 2012 compared to 2011. The R&D index was 77 in the December report compared to 76 in September.

The non-U.S. prospective shipments index, which measures expectations for shipments abroad by foreign affiliates of U.S. firms in the first quarter of 2012 compared to the same quarter in 2012, was the lone index to reflect a double-digit downturn, dropping to 71 in the current report from 85 in the September survey.

The U.S. investment index is based on executives’ expectations regarding domestic capital investment for 2012 compared to 2011. The index was 73 in December, down from 81 in September. The non-U.S. investment index, based on expectations regarding capital expenditures abroad in 2012, was 72 in the current report compared to 75 in September.

Finally, the interest rate expectations index was 63, up from 48, indicating the sentiment that longer-term interest rates are expected to rise by the end of the first quarter of 2012.

In a supplemental section, participants were queried on the volatility of the euro and the problems in the Eurozone economies attributable to the sovereign debt crisis.

Forty-four percent said that the rate of growth in their exports to the Eurozone has slowed, while 16 percent said their exports are declining; 97 percent believe the Eurozone will experience a recession in 2012, with views almost evenly split as to whether a recession would be mild or moderate. Additionally, 57 percent expect the configuration of the Eurozone will remain intact while 41 percent see it surviving but with fewer member countries.

Seventy-five percent of respondents indicated that their companies do not yet anticipate making any significant changes in the Eurozone and 95 percent said the Eurozone crisis has led to a negative impact on revenues and profitability, although most characterize this impact as minimal.

MAPI’s Composite Business Outlook Index is a historically accurate near-term preview of business prospects for the manufacturing sector and is a leading indicator of the Federal Reserve’s industrial production index.

Posted at 10:27 AM by 37584 | Category: Economic Forecast and Analysis | Permalink | Email this Post

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