Regional Manufacturing Expansion Slows
The Southeast Purchasing Managers Index (PMI) experienced a decrease in May as a result of slowing new orders, production, and finished inventory. Nonetheless, manufacturing contacts in the Southeast report continued expansion for the fifth consecutive month this year.
The Southeast PMI is produced by the Econometric Center at Kennesaw State University and provides an analysis of the most current market conditions for the manufacturing sector in Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. The index is based on a survey of representatives from companies in those states regarding trends and activity of new orders, production, employment, supplier delivery time, and finished goods. A reading on this index above 50 represents an expansion in the manufacturing sector, and a reading below 50 indicates a contraction.
The regional PMI Index fell to 53.2 in May, which was a 2.3 point decrease from the previous month's reading of 55.5. Despite experiencing a slight slowing in the rate in which the manufacturing sector is growing in the region, the Southeastern PMI continues to report expansion, while the national PMI dropped below the benchmark of 50 points to 49 to indicate a slight contraction. As mentioned in last month's SouthPoint post regarding manufacturing, while the Southeast PMI is not a subset of the national PMI, both measure a mix of similar components by surveying purchasing managers.
Decreases in new orders, production, and finished inventory led to the overall decline in the regional index last month. New orders and production continued to report expansion readings, which in May were 53.4 and 55.1, respectively, while finished inventories fell short at 46.6. Of those surveyed, 7.3 percent fewer respondents reported higher finished inventories, and 1.2 percent responded experiencing lower finished inventories. The index component—in which survey participants welcome a decline—is in the commodity prices submeasure, which decreased 2.5 points to 47.5, the lowest reading for the submeasure in 2013. Although in general commodity prices have declined, the prices of certain commodities have moved higher over the past year. Contacts in our Regional Economic Information Network reported manufacturers that supply the construction industry have experienced price pressures as the housing market recovers, and those using petroleum-based materials continue to adjust to the commodity's volatile nature. Anecdotally, a global manufacturing contact located in the Atlanta Fed's district recently broadly speculated that inventories may build as manufacturers take advantage of favorable commodity prices.
Of survey participants, 31 percent expect production to be higher in the next three to six months versus 43 percent for the prior survey period. While optimism from survey participants fell for the near term, the outlook index remains in expansive territory at 52 points. Hopefully, the survey participants' outlook will be accurate, and manufacturing activity in the Southeast will continue to reflect expansion in the months ahead.
By Amy Pitts, a senior Regional Economic Information Network analyst in the Atlanta Fed's Nashville Branch
TrackBack URL for this entry:
Listed below are links to blogs that reference Regional Manufacturing Expansion Slows :