WASHINGTON (MNI) – The following is the statement on quarterly U.S.
Business Outlook released Thursday by the Manufacturers Alliance:

The manufacturing recovery continues to trend upward and has
rebounded from severely depressed levels in 2009, according to the
quarterly Manufacturers Alliance/MAPI Survey on the Business
Outlook-June 2010 (ER-702e), a leading indicator for the industrial
sector. The June 2010 composite index rose to a record high 81 percent
from 78 percent reported in the March 2010 report. It breaks the
previous high of 80 percent set in June 2004 and marks the third
straight quarter it has reached 50 percent or above. The index started
as a quarterly series in 1991.

The new benchmark for the index represents a significant turnaround
from March 2009 when the index registered an historic low 21 percent.

“The overall composite index and several forward-looking individual
indexes (orders, export orders, and U.S. prospective shipments) achieved
new heights and indicate continued recovery in manufacturing,” said
Donald A. Norman, Ph.D., MAPI Economist and survey coordinator. “We
should remain cautious, however, because many of the individual indexes
are based on year-over-year comparisons. Manufacturing sector
production fell sharply during the second quarter of 2009; a broad-based
increase in production from the production trough reached at the end of
the second quarter of 2009 would naturally lead to an increase in these
indexes. Still, the broad-based strength in the composite index and the
individual indexes point to further expansion in the next three to six
months.”

While a variety of individual indexes are included in the survey,
the business outlook index is a weighted sum of U.S. shipments,
backlogs, inventories, and profit margin indexes. Eleven of 12
individual indexes showed improvement.

The backlog orders index, which compares the second quarter 2010
backlog of orders with the backlog of orders one year earlier, rose to
87 percent in June from 63 percent in the March survey. An accumulation
of backlogs usually occurs when new orders exceed shipments and thus
indicates growing strength in manufacturing.

The inventory index is based on a comparison of inventory levels in
the second quarter of 2010 with those of one year earlier. It increased
to 44 percent in June from 23 percent in March, still below 50 percent.
This indicates inventories were lower on a year-over-year basis but that
inventory destocking is nearing its end. The quarterly orders index,
based on a comparison of expected orders in the second quarter of 2010
with those in the same quarter one year ago, rose to a record high 97
percent from 85 percent in the previous survey.

The capacity utilization index, based on the percentage of firms
operating above 85 percent of capacity, improved to 20 percent in the
current survey from 9.8 percent in the previous survey. While still far
below the long-term average utilization rate of 32 percent, this is the
first significant improvement for an index that had been stuck at very
low levels since the fourth quarter of 2008.

The export orders index, which compares second quarter 2010 exports
with those of second quarter 2009, set a new high of 85 percent in June
from 76 percent in March. Likewise, the U.S. prospective shipments
index, which reflects expectations for third quarter 2010 shipments
compared with the third quarter of 2009, also set a record, improving to
93 percent in the June survey compared to 88 percent in the March
report.

The non-U.S. prospective shipments index, which measures
expectations for shipments abroad by foreign affiliates of U.S. firms in
the third quarter of 2010 compared to the same quarter of 2009,
increased to 85 percent from 80 percent. The U.S. investment index,
based on expectations of executives regarding capital investment for all
of 2010, was 74 percent, up from 69 percent, indicating increased
domestic investment this year.

The profit margin index increased to 78 percent in June from 74
percent in the March report. The research and development (R&D) index
reflects the views of survey participants regarding R&D spending in 2010
compared to 2009. The R&D index was 72 percent, slightly above the 70
percent recorded in the previous survey.

The annual orders index, based on a comparison of expected orders
for all of 2010 with orders in 2009, continued to be impressive at 95
percent in June compared to 94 percent in March.

The non-U.S. investment index provides insight into expectations
regarding capital expenditures abroad and was the lone component to
drop. The June 2010 index was 67 percent, falling slightly from the 70
percent recorded in March. The fact that this index remains at a high
level, however, implies that a significant number of respondent
companies are anticipating capital spending growth outside the United
States.

In a supplemental component of the survey, respondents were queried
regarding their confidence in the recovery and their companies’ plans
for hiring and capital spending.

Most executives (68 percent) related that they are “confident” or
“very confident” that a normal recovery for their businesses is under
way, with the primary drivers being increased orders and the upswing in
activity in cyclical industries like the automobile industry.

Almost half (48.4 percent) of the respondents indicated that their
company is planning to hire more permanent workers in the United States
in the latter half of 2010. Most companies, though, are not planning to
change capital spending as a result of the recovery. Still, 31.7
percent of the survey participants indicated U.S. capital spending will
increase either slightly or moderately and 18.9 percent said capital
spending abroad will increase over the next twelve months.

Despite the general level of confidence in the recovery,
respondents identified a number of speed bumps that could undermine the
recovery. The two most serious threats, each cited by 67.2 percent of
the respondents, are continued high unemployment/low income growth, and
the growing federal deficit and its impact on interest rates, inflation,
and the dollar.

The survey reflects the views on current and future business
conditions of 62 senior financial executives representing a broad range
of manufacturing industries.

MAPI’s Composite Business Outlook (see chart next page) is an
historically accurate near- term preview of business prospects for the
manufacturing sector and is a leading indicator of the industrial
production index.

** Market News International Washington Bureau: 202-371-2121 **

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