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The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.

The blog's authors include staff from the Atlanta Fed’s Regional Economic Information Network and Public Affairs Department.

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03/09/2012


Southeast PMI surges in February

Purchasing managers indexes (PMIs) are often scaled to an index where a reading above 50 indicates expansion, while a reading below 50 indicates contraction. You can usually read into the pace of expansion (or contraction) by noting how far above (or below) 50 these readings are. Fortunately both the Southeast PMI and the national PMI—produced by the Institute for Supply Management—are scaled on the same index, making them pretty comparable. The correlation between the two is usually pretty strong, but occasionally one or two months of data for one measure will diverge. February was one of those months for the Southeast PMI, which indicated that, while both the Southeast and nation's manufacturing sector are expanding, the pace of growth in the Southeast far outpaced that of the nation's for the month.

PMI Chart

The reality check behind these rosy numbers for the Southeast is that while—granted, the Southeast PMI is a bit more volatile—the underlying details of the report confirm that February's surge is in fact, based on a significantly higher percentage of contacts reporting increased levels of new orders, production, and employment. With regard to finished inventory, which is another component of the index, roughly 36 percent of contacts reported inventory growth over the month, while about half reported said their levels remained roughly the same over the month.


One might expect slow, steady improvement in this underlying detail of the Southeast PMI given what economic forecasters are telling us about growth, but February's reading was quite bright and notably different in tone than the national results for the same month. When these two indexes diverge substantially, I like to take a look at newspaper headlines to see if the numbers make sense. A quick scan of newspaper headlines across the Southeast PMI survey area (also the Sixth Federal Reserve District) yielded the following headlines, which seem to fit the data from Kennesaw State University's Econometric Center:

  • Caterpillar to Build Athens, GA, Plant; 1,400 New Jobs (Athens, Ga.)

Shifting production from Japan, Caterpillar has announced it will break ground on a new $200 million facility within weeks outside of Athens. With its strategy being one geared towards exports, the firm picked Athens because of its proximity to ports in Savannah, Ga., and Charleston, S.C. One initial estimate foresees an additional 2,800 jobs that will be created indirectly through suppliers.

  • Whirlpool's Welcome Expansion (Chattanooga, Tenn.)

Whirlpool is building a new facility in Bradley County that will replace its existing operations there. The new plant will be a $200 million investment, with the facility being roughly 1 million square feet in size.

  • Danfoss Turbocor Celebrates Expansion at Innovation Park (Tallahassee, Fla.)

The company has added 7,500 square feet to its facility to manufacture new lines of products to meet customer demand.

  • Officials Approve 30 Acres for Green Energy Plant (Macon, Ga.)

A wind and solar farm may soon be in the works for Macon. Initial estimates indicate this facility would create 150 direct jobs.

But the light bulb came on upstairs when I saw this item:

  • Volkswagen Struggles to Meet Demand, Good Problem to Have (Chattanooga, Tenn.)

Now employing hundreds more than its initial estimate, the Volkswagen manufacturing plant in Chattanooga is struggling to meet demand at nearly full capacity. The Chattanooga Times Free Press mentioned talk of Volkswagen adding production of another VW model to the area as a result of the success of the current project.

This analyst's stab at an explanation for February's divergence stems in part from the dramatically increased demand seen by foreign automakers with manufacturing operations in the Sixth District over the month. Indeed, one of the big winners in February's gangbuster auto sales report was Volkswagen: the firm's sales were up 42 percent from the same month last year, thanks in large part to increased operations at its relatively new Chattanooga, Tenn., facility. (This was the largest percentage gain of any automaker in the United States.) Kia, with a new plant in Southwest Georgia, saw sales increase by more than 37 percent. Nissan and Hyundai, also with manufacturing facilities in the Southeast, had record sales months in February.

Of course, these great sales figures aren't being driven entirely by new operations in our region, and the Southeast PMI numbers aren't being driven entirely by autos, but with headlines indicating that automakers are struggling to meet demand, the new auto plants across the Sixth District seem like a win-win for local economy and these firms' bottom lines.

Photo of Mark Carter By Mark Carter, an analyst in the Atlanta Fed's research department

 

March 9, 2012 in Manufacturing | Permalink

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