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Spending on Plant, Equipment to Increase in 2015 Say Manufacturing Execs

Jan. 15, 2015
New MAPI study reports that 39% of manufacturers will increase plant and equipment spending in US, while 46% will spend the same as last year and 15% will reduce spending.     

The recent robust manufacturing performance should continue in the near-term despite marginal declines in some indicators, according to the quarterly MAPI Foundation Business Outlook, a survey conducted by the MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation.

The survey's composite index is a leading indicator for the manufacturing sector. The January 2015 composite index slipped to 66 from 67 in the October 2014 survey, the second straight decline after six quarters of incremental improvement. Still, it marked the 21st consecutive quarter the index has remained above the threshold of 50, the dividing line separating contraction and expansion.

Participants were queried on the drivers of and the outlook for capital spending on plant and equipment. Respondents said that cash flow and expected profits are the most important drivers, while long-term interest rates were seen as least important.

Just 15% of the respondents indicated that their companies' total plant and equipment spending in the United States will likely fall over the next three years, 39% expect an increase, and 46% said that capital spending will remain the same.

"The trends in both current and future business conditions were mixed," said Donald A. Norman, Ph.D., MAPI Foundation director of economic studies and survey coordinator. "The results of the January survey point to continued expansion of manufacturing activity heading into 2015, but at a slightly slower pace than in the latter half of 2014."

The most positive  news came in the Capacity Utilization Index, which measures the percentage of firms operating above 85% of capacity. It increased to 42.3% in January, a significant jump from 26.7% in October. This index, which tends to be somewhat volatile, is well above its long-term average of 32%.

The Profit Margin Index also showed growth, advancing to 70 from 67.

However, the remaining indexes in this group fell, including two by 7 points.

The Current Orders Index, which compares orders in the fourth quarter of 2014 with the fourth quarter of 2013, dropped to 71 from 78 in the previous report. The Inventory Index, which compares inventory levels for the same period, declined to 62 from 69. 

"The drop in the Inventory Index can actually be seen as a positive, as it indicates that the danger of an inventory overbuild has diminished," Norman said.

The Export Orders Index, which compares anticipated exports in the fourth quarter of 2014 with those of one year prior, decreased to 59 in January from 65 in October. The Backlog Orders Index dipped only marginally, to 68 from 69.

Forward Looking Indexes

The forward looking indexes were another mixed bag, with positive trends emerging for investment.

The U.S. Investment Index, which is based on executives' expectations regarding domestic capital investment for 2015 compared with 2014, improved to 58 from 52 in the previous survey. The Non-U.S. Investment Index, which forecasts investment abroad, showed a significant advance, rising to 62 in January from 48 in October.

The Prospective U.S. Shipments Index, which reflects expectations for first quarter 2015 shipments compared with those in the first quarter of 2014, decreased to 77 from 83 in October. The Prospective Non-U.S. Shipments Index, which measures expectations for shipments abroad by foreign affiliates of U.S. firms for the same period, fell to 58 in January from 72 in the previous report. Both indexes, though, are still performing at high levels.

The Research and Development Spending Index, which compares anticipated spending in 2015 with 2014, fell to 67 from 70. The Annual Orders Index was 82, a slight decline from a solid 85 In October.