Widespread improvement in a number of indexes suggests optimism for the manufacturing sector in the next three to six months, according to the quarterly MAPI Business Outlook.

The survey’s composite index is a leading indicator for the manufacturing sector. The September 2013 composite index advanced to 66 from 58 in the June survey, the third straight quarterly advance and the highest level since the December 2011 reading of 66. For 16 quarters, the index has remained above the threshold of 50, the dividing line separating contraction and expansion.

“Most indexes improved in September, and several rose significantly,” noted Donald A. Norman, Ph.D., MAPI senior economist and survey coordinator. “In particular, the large increase in the Composite Index and the jump in the U.S. Prospective Shipments and the Backlog Orders indexes point to an increased pace of manufacturing activity in the fourth quarter.”

The Composite Business Outlook Index is based on a weighted sum of the Prospective U.S. Shipments, Backlog Orders, Inventory, and Profit Margin Indexes. The views of 51 senior financial executives representing a broad range of manufacturing industries are distilled into 13 individual indexes split between current business conditions and forward looking prospects. Of those 13 indexes, 9 individual indexes increased and 4 declined.

Current Business Condition Indexes

• The Current Orders Index, a comparison of expected orders in the third quarter of 2013 with those in the same quarter one year ago, shot up to 70 from 53 in the previous report. The export Orders Index, which examines the same time frame, rose to 61 from 45.
• Another double-digit jump was seen in the Profit Margin Index, increasing to 68 in September from 56 in June.
• The Capacity Utilization Index, which measures the percentage of firms operating above 85 percent of capacity, increased to 30.0 percent in September from 21.2 percent in June; its long-term average is 32.0 percent.
• The Backlog Orders Index, which compares the third quarter 2013 backlog of orders with that of one year earlier, rose to 59 from 54.
• The Inventory Index, based on a comparison of inventory levels in the third quarter of 2013 with those in the third quarter of 2012, dropped to 49 in September from 51 in June. This suggests that companies are neither drawing down nor building inventories.

To download the full MAPI Business Outlook, click here.