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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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Regional Manufacturing's Expansion Slows

The dog days of summer are officially in full swing. We all know what that means. It means you better eat your ice cream cone fast or you’ll have rocky road running down the side of your arm. It also means I can’t wait for fall. Cooling temperatures and football are not far away. Manufacturing in the Southeast region has been hot as well, but just like the dog days of summer, we’re wondering if a cooling trend is close at hand.

For the seventh consecutive month, regional manufacturing expanded in the Southeast, but the decelerating trend over the last three months takes a little heat out of the manufacturing kitchen. The Southeast Purchasing Manager’s Index (PMI) reading of 50.2 in July helped preserve a perfect year of expansion in 2013 to date. The PMI index fell 2.7 points last month compared to June’s reading of 52.9. July’s reading represented the third straight month the index has decelerated.

Along with data and reports from business contacts, the Atlanta Fed uses the Southeast PMI to track manufacturing activity in the Southeast. The survey is produced by the Econometric Center at Kennesaw State University. It provides an analysis of current market conditions for the manufacturing sector in Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. The PMI is based on a survey of representatives from manufacturing companies in those states and analyzes trends concerning new orders, production, employment, supplier delivery time, and inventory. A reading above 50 indicates that manufacturing activity is expanding while a reading below 50 indicates that activity is contracting.

The PMI index’s July decline is attributed to sharp decreases in new orders and production. New orders made a strong showing in the June report with its highest reading since September 2012, but fell 11.8 points to 47.2 in July—its lowest reading since January 2013. Production dropped 10 points, to 46.2 from 56.3, after holding strong for six months in the expanding range. Also contributing to July’s decrease was lower hiring activity. A slower rate of hiring activity was indicated by a 1.5 point drop in July, to 54.7.

Survey respondents were also a little chilly when asked about their outlook over the next three to six months. Among respondents, 34 percent expect production to be higher during that period, and 21 percent expect less production. While showing slight improvement from June, the subdued responses over the last three months indicate we may be in for a cooling-off period. Hopefully, manufacturing will heat up again as we move into the fall. One indication that the July deceleration may be temporary is that the national PMI reading rose by 4.5 points to 55.4. If that’s the case, then I have two things to look forward to as we enter the fall—a rebound in manufacturing and football.

By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed’s Nashville Branch

August 13, 2013 in Manufacturing , Productivity , Southeast | Permalink


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