Southeast PMI Hits a Two-Year High
Last month, I suggested in a SouthPoint post that manufacturing activity in the Southeast could be a lion or a lamb, the outcome depending on a couple of different scenarios. Was the strong March PMI report a result of pent-up activity that was delayed by the unusually severe weather experienced during the winter, or was there strong underlying demand present that would propel manufacturing into the second quarter? Judging by April’s Purchasing Managers Index (PMI) report, there is a strong possibility it was the latter. April’s PMI report indicated that manufacturing activity was robust, and various indicators in the report suggest it could continue.
The Atlanta Fed’s research department uses the Southeast PMI to track manufacturing activity in the region. The survey is produced by the Econometric Center at Kennesaw State University. It analyzes 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 times, and inventory levels. A reading above 50 indicates that manufacturing activity is expanding, and a reading below 50 indicates that activity is contracting.
The Southeastern PMI rose 1.7 points compared with March and reached a two-year high of 63.2. The new orders subindex and production subindex both reached their highest levels since early 2012. New orders increased 2.1 points, and production increased 2.7 points compared with March. The rise in new orders bodes well for future manufacturing activity. When new orders are high, generally future production will also be high. Factories also appear to be hiring. The employment subindex rose 5.2 points compared with the previous month, indicating that manufacturing payrolls increased during April. The more new orders and production rise, the more new workers will likely be needed. The finished inventories subindex fell 7.8 points during April, suggesting that inventory levels are falling, which could also lead to increased manufacturing activity going forward.
At the state level, Alabama, Florida, Georgia, Louisiana, and Tennessee all saw increases in their overall PMI during April and were in expansionary territory (see the chart). The only state not above the 50-point threshold was Mississippi, which just missed with a 49.1.
Using the PMI report as an indicator, manufacturing in the Southeast has been on a nice roll the last couple of months. The Southeast PMI has outperformed the national PMI (it should be noted that the Southeastern PMI is not a subset of the national PMI). March and April reports suggest that activity is growing and solid. We will have to wait and see if the trend continues, but in the meantime, let’s hope for a three-year high in May.
By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed’s Nashville Branch
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