November PMI: A Harbinger of Future Expansion?
Manufacturing in the Southeast has performed fairly well in 2013 based on the southeastern Purchasing Managers Index (PMI) report. Every month this year, with the exception of September, has registered expansion in the manufacturing sector. Although most of the monthly data have not been spectacular, they have, shall we say, held the line. November was no different, registering 52.2 points. The November report was a modest gain of 1.8 points over October. The disconcerting element found in this year’s PMI reports has been the low production expectations of survey participants. Since April, month after month had seen low production expectations for the next three to six months. That trend finally took a turn for the better in November.
The southeastern PMI is produced by the Econometric Center at Kennesaw State University. The report surveys purchasing managers from the states of Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. The index is a composite index that equally weighs five indicators including, new orders, production, employment, supplier delivery times, and finished goods inventory. A reading on the index above 50 represents an expansion in the manufacturing sector, and a reading below 50 indicates a contraction.
New orders, production, and supplier delivery times indicators rose in November. The new orders indicator increased 3.1 points in November to 55.1, and the production indicator increased 4.1 points to 55.1. The supplier delivery times indicator increased 4.0 points to 53.1, meaning purchasing agents are waiting longer to get the supplies they ordered. November’s report saw a mild decline in the employment indicator as it dropped 0.9 points to 52.0. The employment indicator still reads above 50, which generally indicates payrolls are growing. The finished inventories indicator fell 1.1 points, which indicates low customer inventories and which could in turn lead to greater future production.
All indicators in the southeastern PMI index could be viewed positively in November, but the most encouraging aspect of the November report was the increase in the level of optimism. When asked about their production expectations during the next three to six months, 45 percent of survey respondents said production will be higher, a healthy increase from October’s tepid 27 percent. Optimism had been waning throughout the summer and fall months. The November increase gives us a boost of hope that manufacturing in the Southeast will continue its expanding ways as we close out 2013. Looking ahead, one could say that many signs point to a strong December. Mix up some expanding new orders, higher production, lower inventory levels, supplies that are in high demand, add a dash of optimism, and it just might make a pretty good manufacturing dish.
By Troy Balthrop, a Regional Economic Information Network analyst at the Atlanta Fed’s Nashville Branch
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