Provided by Donald Norman PhD, Senior Economist from MAPI
Need to Know . . .
This MAPI Business Outlook reflects the views of 51 senior financial executives in member companies on current and future business conditions. The questionnaire was sent out in early June and responses were due June 30, 2014.
Part I: June 2014 Survey Results
Business Indexes
The Composite Business Outlook Index increased from 69 in March to 71 in June. The composite index is well above 50, the dividing line between expansion and contraction, and points to continued expansion over the next three to six months. Further, the composite index has increased steadily over the last six quarters. Figure 1 shows the historical trend in the Composite Business Outlook Index through June 2014. The Federal Reserve’s industrial production index for the manufacturing sector (based on annualized quarterly growth rates) is also shown. In general, the latter closely tracks the Composite Business Outlook Index. A rise or fall in the composite index typically is followed by an even sharper rise or fall in the overall industrial production index for manufacturing.
Composite Business Outlook Index
Most of the indexes based on current business conditions were up in June. The Current Orders Index increased from 71 in March to 78 in June. This index is well above 50, the dividing line between expansion and contraction. The indexes for Export Orders, Backlog Orders, and Profit Margins also increased in June and are above 50. The Capacity Utilization Index slipped from 35.7% in March to 30.0% but remains close to the long-term average of 32%. The Inventory Index decreased from 66 to 59. This decline is a positive sign in that it indicates that threats of an inventory overbuild have decreased. The rise is consistent with increased shipments.
The trends in the forward looking indexes were mixed in June. The Prospective U.S. Shipments Index, based on expected shipments in the third quarter of 2014, slipped from 88 in March to 87. This index, however, remains at a very high level in absolute terms. The Non-U.S. Prospective Shipments Index declined from 81 to 76 while the Annual Orders Index fell from 89 to 81. The U.S. Investment Index jumped from 59 to 67 in June and the Non-U.S. Investment Index continued to improve, rising from 59 in March to 64. Finally, the R&D Spending Index edged down from 69 to 67.
MAPI Forecast of Economic Activity
MAPI updates its economic forecasts four times a year. The most recent (May 2014) forecasts of GDP growth and manufacturing sector growth (total and non-high-tech manufacturing) are displayed below. The forecast of an improvement in the manufacturing sector growth rate is consistent with the results in the current MAPI Business Outlook.
Forecasts of GDP and Manufacturing Sector Growth
Source(s): MAPI
Part II: Current and Forward Looking Indexes
Current Business Condition Indexes
This section presents the current business condition indexes from June 2013 to June 2014. Each is based on comparisons of responses in the current quarter with those of the same quarter one year earlier. The separating point between expansion and contraction is 50. For example, when the Current Orders Index exceeds 50, current orders are up on a year-over-year basis. The charts accompanying each table depict the historical quarterly values for that index.
Current Orders Index—Second Quarter 2014
Export Orders Index
Backlog Orders Index
Profit Margin Index
Inventory Index
The Capacity Utilization Index measures the percentage of companies operating above 85% of capacity.
Capacity Utilization Index
The distribution of companies sorted by their capacity utilization in the March and June surveys is presented in the table below.
Forward Looking Indexes
The indexes in this section are forward looking. The first two are prospective shipments indexes (U.S. and non-U.S.) and are based on a comparison of expected orders in the third quarter of 2014 with expectations of prospective shipments in the third quarter of 2013. The charts that follow each table provide a picture of the historical trends for the forward looking indexes.
Prospective U.S. Shipments Index—Third Quarter 2014
Prospective Non-U.S. Shipments Index—Third Quarter 2014
The remaining forward looking indexes are based on expectations for all of 2014 compared with 2013. Starting in September of each year, survey respondents are asked how annual orders, U.S. and non-U.S. investment, and R&D spending in the current year are expected to compare with the following year. In the current survey, for example, respondents were asked how expected annual orders in 2014 will compare with those in 2013. A comparison of these measures of activity for the same two years continues each quarter until the following September, when the years on which the comparisons are based shift forward.
The tables include responses from the September, December, and March surveys pertaining to expectations for 2014. The reference points in the charts for these indexes are based on results from each year’s June survey.
Annual Orders Index
U.S. Investment Index
Non-U.S. Investment Index
Research and Development Spending Index
Part III: Economic Indicators and Forecasts
This quarter’s wildcard questions focused on the economic indicators and forecasts used for purposes of planning and investment decisions.
The detailed responses to the questions on economic indicators and forecasts are as follows.
1. What forecasts of economic activity are most important for your planning purposes? (Check all that apply)
Other:
2. Which best describes the accuracy over the past two years of the forecasts of U.S. economic activity that you follow?
3. In making investment decisions, what economic data do you chiefly rely on? (Check all that apply)
4. How correlated are your company’s factory orders with government data on business activity?
Comments:
5. What key leading indicators of your company’s future business activity do your staff rely on the most?
Responses:
6. Where is your company in regard to its use of big data [huge amounts of unstructured and semi-structured real-time data, much of it captured or provided by the internet] to improve upon your economic forecasts?