A sharp, precipitous slide has gripped the manufacturing sector and will pose consistent challenges for at least several more months, a recent survey indicates.

The quarterly analysis is called the Manufacturers Alliance/MAPI Survey on the Business Outlook, a leading indicator for the industrial sector. The December 2008 composite index registered a drop to 28 from the 48 reported in the September 2008 report.

At this level, the index indicates that overall manufacturing activity is expected to contract through the first quarter and possibly the second as well.The index is at its lowest level since the survey originated in March 1972. The survey was conducted on a semiannual basis from 1972 to 1991 before being conducted on a quarterly basis in 1991.It should be noted, however, that the index measures the direction of change rather than the absolute strength of activity in manufacturing.

The MAPI index mirrors other recent economic indicators that highlight the severity of the current recession.It is the second straight quarterly reading below 50, the demarcation point between growth and contraction, and lies in stark contrast to an index of 64 just one year ago.

"It seems as though manufacturing activity in most industries hit a wall following the credit crunch that erupted in mid-September," says Donald A. Norman, MAPI economist and survey coordinator."A second factor, and related to the credit crisis, is the rapid slowing of economic activity in countries that are major trading partners of the United States."

While a variety of individual indexes are included in the survey, the business outlook index is a weighted sum of shipment, backlog, inventory, and profit-margin indexes.

All 12 of the individual indexes measured in the survey saw negative changes, and six fell to all-time lows:

The export orders index, which measured how fourth-quarter 2008 exports compare with those of the year-earlier quarter, declined to 25 percent in December from a strong 76 percent in the September survey.

The non-U.S. prospective shipments index, which measured expectations for anticipated shipments by foreign affiliates of U.S. firms outside the U.S. in the first quarter of 2009 compared with the year-earlier quarter, fell to 27 percent from 73 percent.

The annual orders index, based on a comparison of expected orders for all of 2009 with orders in 2008, tumbled to 16 percent in December compared with 58 percent in the September survey.The U.S. prospective shipments index, which reflected expectations for first-quarter 2009 shipments compared with first-quarter 2008 shipments, was 14 percent, down from 47 percent in September.

The quarterly orders index, which compared new orders for the fourth quarter of 2008 with those in the year-earlier quarter, retrenched to 15 percent from 44 percent in the previous survey.Finally, the backlogs index, which compared the fourth-quarter 2008 backlog of orders with the backlog of orders a year earlier, fell to an all-time low of 21 percent from 49 percent in the September survey.An accumulation of backlogs usually occurs when new orders exceed shipments. Retrenchment in backlogs is another sign that overall manufacturing activity will fall over the next several months.

While remaining above record lows, the other six indexes failed to fare much better.

The U.S. investment index, which queried executives on their expectations regarding capital investment in 2009 compared with 2008, decreased to 30 percent in December 2008 from 56 percent in the prior survey. The non-U.S. investment index provides insight into expectations regarding capital expenditures abroad this year compared with last year. It was 40 percent, well below the 64 percent in the September survey, indicating that investment outside the U.S. is expected to fall this year.

The research-and-development index asked respondents for their forecast regarding R&D spending. The R&D index fell to 50 percent in December from 71 percent in September.The capacity utilization index, based on the percentage of firms operating above 85 percent of capacity, fell to 26.7 percent in the latest survey from 36.7 percent three months earlier.

Meanwhile, the profit margin index gave back 10 percentage points, falling to 43 percent in December from 53 percent in the September report, the fifth straight quarter of decline.The inventory index, based on a comparison of inventory levels, dropped to 50 percent in December from 58 percent in September.The fall in this index suggests manufacturers are having some success in paring excess inventories.

Forty-one percent of respondents indicated that credit market conditions have not impacted the investments or acquisitions of their companies, while 37.7 percent characterized the impact as "moderate to significant."

The Manufacturers Alliance/MAPI is a 76-year-old trade organization that originally was known as the Machinery and Allied Products Institute and was formed as a result of the Depression-era National Industrial Recovery Act. Its purpose was to help stabilize the machinery industry at a time of unprecedented stress.

Although the original government-driven mandate soon fell by the wayside, industrial leaders saw the value of working together to address common problems and share insights with their peers.The organization now serves manufacturers through a focused program of economic research, peer learning, and fostering a continuous education environment.