A Southern Slowdown in Manufacturing?
Manufacturing in the Southeast had been thriving in recent months. According to the Southeast Purchasing Managers Index (PMI) report, new orders, production, and employment at regional manufacturers had been strong since March. The latest PMI report, released on July 7, suggests that activity may be slowing down a little bit.
The Southeast PMI is produced by the Econometric Center at Kennesaw State University. A reading on the index above 50 represents an expansion in the manufacturing sector, and a reading below 50 indicates a contraction. The survey provides an analysis of manufacturing conditions for the region in Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. Representatives from various manufacturing companies are surveyed regarding trends and activities in new orders, production, employment, supplier delivery time, and finished inventories.
The June PMI decreased 4.5 points compared with May. Although still boasting an overall reading of 55.3 points (which is not bad), the new orders and production subindex readings dropped. The new orders subindex fell 10.1 points from May to 59.4, and the production subindex fell 10.8 points to 56.6 compared with the previous period (see the chart). The readings are still firmly in expansion territory, but they don’t have the excitement of the high readings from previous months. The employment subindex also decreased 4.6 points from May’s 55.2. Manufacturing payrolls are still increasing, according to the PMI survey, but fewer companies may be adding employees.
The supplier delivery times subindex increased 1.8 points during the month, suggesting that it is taking a little longer to receive inputs at manufacturing plants. The commodity prices subindex fell 10.0 points compared with May, which could be a sign that price pressures for materials may be easing.
Looking ahead, manufacturing contacts’ optimism concerning future production remains lackluster. When asked for their production expectations, only thirty-four percent of survey participants expect production to be higher in the next three to six months. The percentage of contacts expecting higher production has been falling in recent months.
So, is manufacturing activity slowing? It’s difficult to draw that conclusion over one month’s data. However, the sharp drop in new orders and production is hard to ignore. It’s important to remember that the overall PMI reading is still positive and is in line with June’s national index reading of 55.3 from the Institute for Supply Management. The Southeast PMI indicated that manufacturing activity had been sprinting down the track in recent months. Maybe it needed a breather, or maybe it pulled a hamstring. We’ll have to wait and see.
By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed’s Nashville Branch
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