The NAM/IndustryWeek Manufacturing Index -- 4th Quarter 2009

By David Huether, Chief Economist, National Association of Manufacturers

The business outlook for manufacturers improved modestly in the fourth quarter of 2009, marking the third consecutive quarterly improvement in the NAM/IndustryWeek Manufacturing Index. The Index is a quarterly survey of members of the National Association of Manufacturers (NAM) that began in the fourth quarter of 1997.

When the economy entered recession in the fourth quarter of 2007, 70% of respondents to the NAM/IndustryWeek Manufacturing Index had a positive business outlook. By the first quarter of 2009, this level of optimism had fallen to just 28%. Then, after increasing to a level of 42% in the second quarter of 2009 and 55% in the third quarter, the share of survey respondents with a positive business outlook increased to 60% in the fourth quarter of 2009, the highest level in seven quarters.

While conditions have improved for manufacturers over the past three quarters, results of the current survey differ little from the third quarter survey -- and actually regressed in several areas -- which suggests manufacturers continue to expect business conditions to improve only modestly over the coming year.

Results of the fourth quarter survey are based on responses of 189 members of the NAM. Companies recorded their business outlook as well as their 12-month expectations on sales, prices, capital investment, inventories, employment and wages.

In addition, we asked: From your company's perspective, how long will a downturn in production last?

Answers to this question generally fell into three categories:

• Production is already growing for more than one-quarter (29%) of survey respondents: 6% experienced a slowdown in production but not a downturn; 8% reported that production has remained healthy; and 15% reported that production has already started to rebound.

• Close to one-half (48%) expect the downturn to last into 2010, with 19% expecting the downturn to last into the first half of the year and 29% expecting a downturn to last into the second half of the year.

• Nearly one-quarter (23%) expect a downturn in their company's production to last into 2011 or later.