US manufacturing sector shows ‘signs of strain’

17 April 2008 18:09  [Source: ICIS news]

US manufacturing strains to maintain growthWASHINGTON (ICIS news)--The US manufacturing sector is showing signs of strain as a key measure of the country’s industrial activity fell to 57% in the first quarter this year from 64% in the fourth quarter of 2007, the Manufacturers Alliance said on Thursday.


In its quarterly business outlook survey of senior financial executives across a wide spectrum of US manufacturing, the alliance said its first-quarter composite index of industrial activity is at its lowest point since the 54% recorded in the fourth quarter of 2006.


A reading of 50% or above for the index - a composite of ten factors such as shipments, backlogs, inventories, exports and profit margins among others - suggests that manufacturing activity is expected to increase over the next half-year.


The well-being of the US manufacturing sector is important to chemical producers because the broad production segment of the economy is a major downstream consumer of chemicals and chemical-derived materials.  Another major chemicals-consuming sector, housing, shows no sign of a near-term recovery from its long decline.


However, while the first quarter index of 57% suggests that manufacturing growth is expected in the near term, the alliance noted that all ten factors that make up the composite fell from levels seen in the fourth quarter last year.


Although all ten indicators remain above the key 50% level, five of them fell by double-digits, the alliance noted.


“Despite the fact that all the indexes remain above the 50% threshold separating growth from contraction, the fact that they all fell indicates that the growth of US manufacturing activity is slowing,” said Donald Norman, a Manufacturers Alliance economist and survey coordinator.


“At the same time, most of the companies represented in the survey are global, and the outlook for business abroad is somewhat rosier,” Norman said.  “Global growth will help offset any slowing of activity in the US.”


The surveyed companies reported that sales outside the US accounted for slightly more than 38% of their revenues for the most recent fiscal year, “a clear increase from the 31.1% of non-US sales seen three years ago,” the alliance said.


Even in exports, however, there are signs of trouble, according to the alliance data.


The exports orders index  fell to 72% from an all-time high of 80% in the fourth quarter survey, the alliance said.


Profit margins also declined, falling to 60% in the just ended quarter from the 68% recorded in the fourth quarter last year. 


In addition, spending on research and development (R&D), seen as an indicator of financial officers’ confidence in future business, dropped to 72% in the first quarter compared with 77% in the fourth quarter last year.


Despite these downward trends, the Manufacturers Alliance said that “even in light of the lower numbers, growth in the sector is anticipated in the near term”.

By: Joe Kamalick
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