US manufacturing slows further in Q3 for 9th quarterly decline

11 October 2012 17:39  [Source: ICIS news]

WASHINGTON (ICIS)--Growth in the US manufacturing sector continued to slow in the third quarter, a leading industrial group said on Thursday, noting that production output has decelerated for nine straight quarters.

The Manufacturers Alliance for Productivity and Innovation (MAPI) said that its quarterly survey of the business outlook indicates “slowing growth for US manufacturing over the next three to six months” and shows “continued softening in the industrial base”.

The MAPI survey of senior financial executives across a broad range off manufacturing industries measures shipments, orders, inventory and profit margins to develop a composite business outlook index. 

MAPI says that the composite index “is an 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”.

For the three months ended on 30 September, MAPI said that its composite index fell to 56 from the previous reading of 61 at the end of the second quarter in June.

That five-point drop in the index was the sharpest decline over the nine quarters of slowdown and followed a four-point drop in the second quarter.

The third quarter index measure of 56 is down from the record high of 81 seen in June 2010, the alliance said.

That third quarter decline also brings the index closer to the midpoint measure of 50, the demarcation that separates manufacturing from growth and contraction.

MAPI senior economist and survey coordinator Donald Norman said that the US manufacturing sector is not likely to crash. “In fact, it is expected to expand, even if at a much slower rate than what we’ve experienced over the past two years,” he said.

In addition to the ongoing decline in the composite index, MAPI said that its survey of manufacturing chief financial officers (CFOs) showed declines in export orders during the third quarter along with lower capacity utilisation and declines in both capital investment and spending on research and development (R&D).

For the third quarter survey, Norman said he also queried financial chiefs on the potential impact of the “fiscal cliff”, the major federal tax increases and federal spending cuts that are set to take effect in January unless Congress acts before then to modify one or both.

He said that “83% of respondents believe that going over the fiscal cliff would have a moderately negative to very negative impact on their company.”

“Just 8.6% said that the impact would be minimally negative,” he added.

In anticipation of the fiscal cliff, Norman said that about a third of US manufacturers are holding back on hiring and 17% have scaled back or put on hold planned capital investments.

Asked what they regarded as the greatest threat to the US economy, 42% of the manufacturing financial officers cited the possibility of the eurozone banking and sovereign debt crisis spreading to the US, while 33% said the fiscal cliff posed the greater risk.

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


By: Joe Kamalick
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