The MAPI Composite Business Outlook Index was 65 in March, down from 66 in December 2011. The index remains above 50, pointing to continued expansion over the next three to six months. The index has declined steadily since reaching a record high of 81 in June 2010, although the rate of decline has been relatively slow over the past year. Most of the individual indexes increased in March. Further, the composite index and all the individual indexes remain well above 50, the dividing line between expansion and contraction. The Capacity Utilization Index increased from 38.1 percent to 40 percent and remains above its long-term average of 32 percent. The Inventory Index has fallen steadily since June 2011 when it reached a record high of 82. The subsequent fall in the Inventory Index should be interpreted as a positive sign in that inventories were likely above their desired level because of a slowdown in the growth in sales.

The forward looking Annual Orders, U.S. and Non-U.S. Investment, and Prospective Non-U.S. Shipments indexes increased while the Prospective U.S. Shipments and R&D Spending indexes declined.  Overall, this quarter’s survey results point to continued expansion at a moderate rate over the next three to six months.

This quarter’s wildcard topic was the earnings outlook for 2012 and factors that will or could impact earnings in a positive or negative way.  Just 17 percent of respondents reported the overall outlook for earnings over the last three months has deteriorated while 39 percent indicated that the earnings outlook has improved. The remaining 44 percent said there has been no change. Earnings in 2012 are expected to increase in the U.S., the Eurozone, China, and the rest of Asia and Latin America. The earnings outlook was strongest in the U.S. (with a diffusion index of 90) and weakest in the Eurozone (with a diffusion index of 54). Top-line growth from U.S. sales is expected to be the largest contributor to earnings in 2012; 58 percent of respondents indicated that it is either a very positive or moderately positive factor for earnings growth. The economic outlook for the Eurozone and rising oil prices are thought to be the most significant factors that could have a negative impact on earnings growth in 2012.

Don Norman, Senior Economist, MAPI