U.S. Business Insights Report: Manufacturing

D&B U.S. Business Insights
Monthly Report
Published May 2012
by Paul Ballew, D&B Chief Economist

D&B Manufacturing Report
The violent economic U.S. Trade in Goods shows the revival in 2010-11
downturn in 2008 hit the
U.S. Manufacturing sector
broadside. Portions of the
sector were already limping
along due to energy price
shocks in 2005-2006 and the
significant drop in consumer
demand and global commerce
early in 2008 resulted
in the most significant
contraction in over seven decades. Coming out of the
steep contraction most economists expected a vigorous
bounce back due to pent-up demand and the normal
cyclical recovery of the sector. Yet, measures of activity
for the Manufacturing sector have been more muted
or at least mixed and have prompted concern over the Source: U.S. Bureau of Economic Analysis

resulting impact on the health of this key sector.

In this month’s report, Dun & Bradstreet provides insight
into the health of the Manufacturing sector. Utilizing
D&B’s proprietary insights we confirm the moderate D&B Key Perspectives
top-line growth reported in governmental measures of ● Manufacturing sector is recovering briskly
activity.
despite tepid demand growth
In addition, a more detailed analysis of the sector reveals ● Financial restructuring has been rapid post
substantial improvements in the financial health of the 2008 and the pace has accelerated
manufacturing, positioning industries to grow even ● Leaner and meaner US manufacturers
as the overall economic recovery remains tepid. The are poised to improve global competitive
health of the sector has improved to an extent where position
a sustained revival is highly probable including further
expansion in exports.

*Department of Planning and Development 01
www.dnb.com ©2012 Dun & Bradstreet

D&B U.S. Business Insights Monthly Report

Most macro level measures on manufacturing activity Moderate recovery has been at a consistent rate
provide a generally consistent picture. A close look at
the Industrial Production Index in 2010 and 2011 shows
an increasing trend with slight downturns in mid-2010,
early 2011 and again in mid-2011. D&B’s proprietary data
on Current Spend in the Manufacturing sector is highly
correlated with the Industrial Production Index, and the
correlation increases as industrial production is lagged
by four months. This relationship establishes D&B’s
current spend as a powerful predictor for the Industrial
Production Index. The Current Spend in manufacturing
shows that other than a slight downturn that occurred
in early 2011 (followed by a significant accession) the
Source for Industrial Production Index: Board of Governors of the
moderate recovery has been on a consistent path. Current Federal Reserve System
Spend data confirms an increasing trend throughout D&B Proprietary Spend Data
2010 and continuing through the end of the year. So the
modest bounce back in manufacturing has been very
consistent albeit at a moderate growth rate and the sector
is positioned to continue to bounce along at moderate Financial health has improved dramatically
growth rates in 2012.

Perhaps more important than confirming the moderate
top-line growth rate, D&B has been able to confirm the
dramatic improvement in the financial health of the sector.
Failures and bankruptcies in the Manufacturing sector
confirm the rapid deterioration of the economy starting
in 2007. This surge gradually decelerates until 2010 when
measures on failures and bankruptcies begin to improve
dramatically. This trend in failures and bankruptcies is
corroborated by leading indicators in the Manufacturing
sector made available by the U.S. Census Bureau.

Further analysis shows (Tables in Appendix), not
Source for Manufacturing Value of Shipments and New Orders:
unexpectedly, higher percentage of both failures and
U.S. Census Bureau Economic Indicators, Manufacturing and Trade
bankruptcies in both 2010 and 2011 compared to 2006. Inventories and Sales database.
Failures and bankruptcies were also higher in 2010 D&B Proprietary Bankruptcy & Failure Data
compared to 2008. However, 2011 was clearly a turning
point for the sector and provides strong indications that
the recovery is on firmer foundation. Significant decreases
in both percentage of failures and bankruptcies compared
to both 2008 and 2010, with the largest decreases having
taken place in the past year. The bottom line is that the
sector, despite only moderate top-line growth, has made
significant strides in productivity and overall financial
wherewithal.

At the state level, (Tables in Appendix) the overall trend
holds as well. The failure rates of the individual states



peaked in 2009. Alaska, South Dakota, Vermont and Delinquencies have been on a downward trend
Wyoming are the states that have consistently low failure
levels in the Manufacturing sector while California,
Delaware and Nevada have consistently the highest. These
variances reflect the mix of manufacturing industries in
these individual states.

As with failures, business bankruptcies follow the overall
trend – peak in 2009 with subsequent improvement
resulting in achieving close to pre-recession levels.

Turning to a more economically sensitive measure,
delinquencies, the monthly percent of delinquent dollars
91 days past due in 2010 and 2011, show a downward
trend which further supports measures of improved D&B Proprietary Delinquency Data
Percent of Dollars 91 Days Past Due: Manufacturing vs.
financial health in the sector. Consistent with measures on
Other Industries
failures and bankruptcies, payment behavior prompts D&B
to have further confidence that the sector has turned the
corner through gains in productivity and restraint of costs.

A closer look at the states (Tables in Appendix) in terms of Manufacturing sector has turned the corner
delinquent dollars shows that Wyoming, in addition to its
consistent low failure rates, also exhibits consistently low
delinquency rates. Nevada, Arizona and Florida emerge
as the worst states by delinquency rates likely reflecting
the impact of their local economies that have been the
epicenter of the housing melt-down.

As far as percent of delinquent dollars and businesses
by sub-sectors of Manufacturing is concerned (Charts in
Appendix), all major sectors of Manufacturing show a
decline in December 2011 compared to December 2010.
The sub-sectors that show the largest declines in 2011 are
Leather and Leather Products and Chemicals and Allied
Source: U.S. Bureau of Labor Statistics, Labor Productivity and
Products, by percent of delinquent business and percent of Costs Database
delinquent dollars, respectively. The sectors showing the Percent YOY Changes in Labor Productivity (Output per Hour)
lowest declines by the two above measures, respectively, Index, 2005=100: Manufacturing vs. Other Sectors

are Primary Metal Industries and Tobacco Products.

Normally at this stage of economic cycle manufacturing
is recovering because of vigorous top-line sales growth
due to pent-up demand. The performance of the current
economic cycle does not display this traditional pattern of a
rapid recovery in demand. Yet, manufacturing is in a revival
mode and the gains are being built on a foundation that
may prove to be more durable in the long-term. Leaner and
meaner manufacturers are emerging from the current cycle
and the strides they have made are positioning them to
grow despite lackluster macroeconomic growth.



APPENDIX

Failures and Bankruptcies in Manufacturing: 2006-2011

2006 2008 2010 2012
Failures Bankruptcies Failures Bankruptcies Failures Bankruptcies Failures Bankruptcies
2121 1195 3239 1760 3868 2178 2818 1625
% YOY Changes
2006 vs. 2011 2008 vs. 2010 2008 vs. 2011 2010 vs. 2011
Failures Bankruptcies Failures Bankruptcies Failures Bankruptcies Failures Bankruptcies
32.86% 35.98% 19% 24% -13.00% -7.67% -27.15% -25.39%

Failures and Bankruptcies: Manufacturing vs. Non-Manufacturing

Percent YOY Changes in Failures and Bankruptcies: Manufacturing vs. Non-Manufacturing

Source: D&B Proprietary Data


States with Lowest Percent of Business Failures: 2006 to 2011

Quarter 4: 2006 Quarter 4: 2007 Quarter 4: 2008
State % Failures State % Failures State % Failures
Alaska* 0.00% Wyoming* 0.00% Wyoming* 0.07%
Maine* 0.08% Alaska* 0.07% Montana* 0.09%
Nebraska* 0.12% Delaware* 0.10% North Dakota* 0.20%
Vermont* 0.26% Iowa* 0.21% South Dakota* 0.11%
Wyoming* 0.29% Louisiana* 0.33% Alaska* 0.13%
South Dakota* 0.34% Vermont* 0.34% Vermont* 0.17%
*State has less than 10,000 Manufacturing DUNS

States with Lowest Percent of Bankruptcies: 2006 to 2011

State % Bankruptcies State % Bankruptcies State % Bankruptcies
Alaska* 0.00% Alaska* 0.00% Wyoming* 0.07%
Maine* 0.00% Wyoming* 0.00% Montana* 0.08%
Iowa* 0.06% Delaware* 0.00% Kansas* 0.09%
Vermont* 0.13% Vermont* 0.13% Vermont* 0.04%
Maryland* 0.21% Iowa* 0.13% South Dakota* 0.05%
North Dakota* 0.22% Mississippi* 0.13% Alaska* 0.06%



States with Highest Percent of Business Failures: 2006 to 2011

Pennsylvania 0.60% Nevada* 0.60% Mississippi* 0.97%
Delaware* 0.58% Alabama* 0.51% Louisiana* 0.74%
Ohio 0.47% Georgia 0.50% South Dakota* 0.74%
Delaware* 2.53% Delaware* 0.88% Nevada* 0.72%
Michigan 1.11% California 0.86% California 0.63%
Nevada* 1.05% Nevada* 0.80% Tennessee 0.61%

States with Highest Percent of Bankruptcies: 2006 to 2011

Pennsylvania 0.51% West Virginia* 0.31% South Dakota* 0.64%
Delaware* 0.51% Arizona 0.29% Delaware* 0.39%
Michigan 0.32% Indiana 0.29% Tennessee 0.38%
Delaware* 2.32% California 0.55% Tennessee 0.45%
Michigan 0.72% Delaware* 0.54% Utah* 0.44%
Tennessee 0.72% Maine* 0.54% California 0.42%



States with Lowest Delinquent Dollars

Largest YOY change
December 2010: % of dollars 91 DPD December 2011: % of dollars 91 DPD
December 2010 vs. December 2011
Oklahoma* 0.64% Wyoming* 0.29% Idaho* -75.93%
Kentucky* 0.73% Idaho* 0.72% Wyoming* -73.09%
Wyoming* 1.06% South Dakota* 0.74% Iowa* -65.30%

States with Highest Delinquent Dollars

Largest YOY change
December 2010: % of dollars 91 DPD December 2011: % of dollars 91 DPD
December 2010 vs. December 2011
Nevada* 13.63% Nevada* 9.16% New Hampshire* 90.22%
Arizona* 7.90% Florida* 7.67% Oklahoma* 42.52%
Florida* 7.53% Arizona* 7.30% New Mexico* 41.30%

DB-3302_12_05_01

*Department of Planning and Development

Dun & Bradstreet is the world’s leading source of commercial information and insight on businesses, enabling companies to Decide with Confidence® for more than 170 years. D&B’s global
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This quality information is the foundation of our global solutions that customers rely on to make critical business decisions.


U.S. Business Insights Report: Manufacturing

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