Manufacturers say sector poised for rebound

WASHINGTON (Reuters) - An index of U.S. manufacturing hit its highest point in a year, an industry survey showed on Thursday, suggesting one of the sectors hit hardest by the recession could improve next year.

The Manufacturers Alliance/MAPI said its composite business index -- a weighted sum of shipments, backlogs, inventories and profit-margin indexes -- rose to 38 percent in September following a reading of 24 percent in June.

"While many of the individual indexes remain at very low levels, the forward-looking indexes, like that for annual orders, are at much higher levels, indicating that manufacturing activity is expected to increase in 2010," said Donald Norman, MAPI economist and survey coordinator.

At 38 percent the index still indicates that overall manufacturing activity is expected to contract over the next three to six months, relative to levels one year ago when the economy was entering the severe recession, MAPI said.

The September 2009 index marks the fifth straight quarterly reading below 50 percent, the demarcation point between growth and contraction. The last time the index reached 50 percent was June 2008.

Most forward-looking indexes showed strength.

The annual orders index, based on a comparison of expected orders for all of 2010 with orders in 2009, was 66 percent, while the non-U.S. investment index was 52 percent, with respondents anticipating marginally increased expenditures for capital spending outside the United States, the survey said.

The U.S. prospective shipments index, based on expectations for orders in the fourth quarter of 2009, increased to 30 percent from 4 percent. The non-U.S. prospective shipments index increased to 33 percent from 15 percent.

The U.S. investment index, based on expectations for capital spending for all of 2010 was 47 percent.

However, the survey found signs the recovery still faces some challenges.

The U.S. prospective shipments index, which reflects expectations for fourth quarter 2009 shipments compared with the fourth quarter of 2008, improved to 30 percent in the September survey compared to 4 percent in the June report.

This implies that most companies will continue to see domestic shipments decrease this quarter compared to levels one year ago, MAPI said.

Business investment is seen by economists and Federal Reserve officials as necessary for the recovery to last.

The survey was based on responses from 61 senior financial executives with firms in a broad range of manufacturing industries.

(Reporting by Nancy Waitz; Editing by Kenneth Barry)