Regional Manufacturing Survey Ended 2012 with a Fizzle, but Could Start 2013 with a Bang
The Southeast Purchasing Managers Index (PMI), produced by the Economic Center at Kennesaw State University, ended 2012 with a reading of 46.4, which was practically unchanged from November's disappointing 46.2 result. A reading above 50 represents an expansion in the manufacturing sector, while a reading below 50 indicates a contraction.
Anecdotally, we heard from many of our manufacturing contacts that their order books had cooled late in the year, with several of them pointing to the economic uncertainties generated by the fast-approaching fiscal cliff. Indeed, the new-orders component of the regional PMI survey showed a disappointing monthly decrease of 3.7 points in December, to 42.6. The production component fell 2.7 points to 41.8 in December from November.
But here's where the data on orders and production diverge from the story told by some other components of the regional PMI survey. The employment component increased two-tenths of a point, to 48.4. Although the reading is still below 50, the increase may reveal that manufacturers see the slowdown in orders and production as temporary. In fact, the number of respondents that expect production levels to increase in the next three to six months jumped from 31 percent in November to 47 percent in December, causing the outlook measure of the regional PMI to reach 66.4.
There are other reasons to believe that the late-2012 fizzle in the Southeast PMI may not be telling the whole story.
- Autos remained a strong sector in December. Preliminary data for the month showed rather healthy levels of auto output for most U.S.-made brands that have facilities in the Southeast.
- We have also heard that construction-related manufacturing activity was ramping up in response to the slow, but steady, improvement in homebuilding and renovations.
- Energy-related manufacturing is going strong. Not only is the actual production of energy products doing well, but the industrial goods needed to extract, refine, and transport these goods is also strong.
So perhaps the message is that while the headline PMI number is unimpressive, and the forward-looking new-orders component was particularly disappointing, all the news is not bad for manufacturing.
By Michael Chriszt, a vice president in the Atlanta Fed's research department
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