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.
Postings are weekly.
Has Southeast Manufacturing Found Some Optimism?
Have you ever lost your car keys? How about your wallet? I hate looking for things. I was never one to enjoy an Easter egg hunt. It's maddening when I can't find something. Lately in SouthPoint, I've been searching for a little optimism coming from the manufacturing sector. Following a string of strong reports from the Southeast purchasing managers index (PMI), optimism among manufacturers in the Southeast deteriorated significantly in October. According to the October PMI report, only 21 percent of manufacturers expected production levels to be higher during the next three to six months, down 29 percentage points from the prior month's reading. I was wringing my hands trying to figure out whether the weakness in October was an anomaly or a sign of something deeper. So did the November report disappoint me? No: the November Southeast PMI report, released on December 5, indicated that optimism is back.
The Atlanta Fed's research department uses the Southeast PMI to track regional manufacturing activity. Produced by the Econometric Center at Kennesaw State University, the survey 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.
Most underlying variables in the November PMI report were generally positive (see the chart). Despite decreases in the new orders and production subindexes, the PMI increased to 58.3 in November, which was a 1.8 point rise compared with October.
- The new orders subindex decreased 3.4 points from October but remained above 60.0 points for the third consecutive month with a reading of 61.0.
- The production subindex fell 7.6 points compared to the previous month, but similar to the new orders subindex, it remained close to 60.0 points, registering 59.8.
- The employment subindex rose significantly, increasing 9.8 points over October. November's 64.6 is the highest reading for the employment subindex since June 2013.
- The supplier deliveries subindex rose 2.5 points over October. The rise suggests that purchasing agents are experiencing longer wait times to receive materials they ordered.
- The finished inventory subindex rose 7.4 points compared with October and now reads 48.8. The rise completely reversed last month's fall of 5.7 points.
- The commodity prices subindex rose to 52.4, a 1.5 point increase compared with October.
As I mentioned above, optimism rose significantly in November over October levels. When asked for their production expectations over the next three to six months, 51 percent of survey participants expected production to be higher in that period.
Along with the strong Southeast PMI reading, the national PMI also continued to register strong readings, reaching 58.7 points in November. (Note that the Southeast PMI is not a subset of the national PMI.) Now that optimism is back on the right track, manufacturing looks to close out 2014 on a strong note. And most importantly, I don't have to keep looking for optimism.
By Troy Balthrop, a senior Regional Economic Information Network analyst in the Atlanta Fed's Nashville Branch
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