US manufacturing said to be on continuing growth trend

14 April 2011 18:26  [Source: ICIS news]

WASHINGTON (ICIS)--The US manufacturing sector is on a continuing growth trend, a key business survey indicated on Thursday, although the pace of growth may slow later this year because of  manufacturers’ concerns about rising commodities prices.

The Manufacturers Alliance said that its quarterly survey of business outlook among its member firms indicates that manufacturing executives are confident about the near-term future.

The well-being of the broad US manufacturing sector is of interest to the nation’s chemicals producers because many manufacturing industries - auto production, durable goods, furniture and building supplies among them - are key downstream consuming markets for chemicals and plastics.

The alliance surveys senior financial executives every quarter to gauge their views on 16 categories of business activity, such as US orders and shipments, exports, inventories, backlogs, profit margins, research and development (R&D) spending and others.

The results from those subsidiary business categories are combined to make up the group’s business outlook index.

The index is considered a leading indicator for the nation’s manufacturing sector because it measures executives' expectations for future business, not just the most-recent quarter’s performance.

In the survey for the first quarter 2011, the index fell to 72% from 75% the end of 2010, but that slight decline was not deemed significant.

A business outlook index at 50% or higher indicates expansion in the manufacturing sector, while a reading below that midpoint points to contraction.

Manufacturers Alliance economist and survey coordinator Donald Norman noted that even at 72%, “the current index is a dramatic improvement from the record low 21% recorded two years ago in the March 2009 survey, signalling that a turnaround for industry continues”.

“The results off the March survey show the indexes to be strikingly robust and relatively stable,” Norman said. "As such, they paint a clear and consistent picture of continued growth in manufacturing sector activity.”

Norman also noted that the index has been in growth territory above the 50% midpoint for six consecutive quarters.

However, manufacturing executives expressed some concern about rising prices for commodities and raw materials that go into their products.

Slightly more than half of the respondents, 54.7%, expect commodity prices will continue to rise moderately throughout the year.

Norman said that 50% of respondents said that the rising commodity prices are having moderate-to-significant impact on their profit margins.

Eighty-two percent of the manufacturing firms surveyed said they will not be increasing inventories of commodities where prices are expected to increase, while 26% of the respondents said they were purchasing futures contracts in raw materials as a hedge against future increases.

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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