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.
Southeast Manufacturing: Solid as an Oak
When I was a kid, I spent a few fall afternoons cutting and splitting firewood with my older brother. I must say that I didn't care for the process at all. It was hard work, and I have much respect for people that carry on the time-honored tradition. I learned quickly that there were certain types of wood you wanted to stay away from. Oak was one of them. Now, I am ashamed to say that I didn't pay close attention when collecting tree leaves for science class, but I always knew when I was trying to split a piece of oak. As a matter of fact, when I would come across a piece of oak, I preferred to skip over it. Oaks are strong and stately trees and no fun at all to split. The March Southeastern purchasing managers index (PMI) report, released on April 6, reminded me of my ill-fated attempts to split oak. It is one tough piece of wood.
The Atlanta Fed's research department uses the Southeast PMI to track regional manufacturing activity. The Econometric Center at Kennesaw State University produces the survey, which 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 March Southeast PMI's overall index declined slightly from February, falling 2.5 points to 58.0 (see the chart). However, the index has remained above the 50 threshold for expansion 14 out of the last 15 months. It also averaged a solid 58.0 during the first quarter.
- The new orders subindex fell 6.6 points to 56.9.
- The production subindex decreased 2.9 points compared with the previous month and now reads 61.8.
- The employment subindex declined 9.2 to 57.8. The March report indicated that manufacturing payrolls have now grown for 18 consecutive months.
- The supplier deliveries subindex increased 1.2 points to 54.9.
- The finished inventory subindex increased 5.2 points to 58.8.
- The commodity prices subindex rose 4.8 points and now reads 40.2.
Optimism for future production also increased in March. When asked for their production expectations during the next three to six months, 53 percent of survey participants expected production to be higher going forward, compared with 46 percent in February.
Much of the recent national manufacturing data have been weak. In March, the industrial production report indicated that manufacturing output increased 0.1 percent during February, but output had declined in the previous two months. New orders for core capital goods also declined for the sixth consecutive month in February and the March ISM index, although still indicating expansion, fell to its lowest reading since May 2013. Some analysts believe cold weather and the strong dollar are affecting overall manufacturing activity.
Despite the recent weak national numbers, southeastern manufacturing appears to be holding strong...just like the oak trees I tried to split as a kid. If you've never split wood—and especially a piece of oak—try it sometime. I doubt it will make your top-five list of things to do. Oak is one tough piece of wood.
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The Fruits of Our Labor
February 2015 state-level labor market data from the U.S. Bureau of Labor Statistics (BLS) for Sixth District states was solid—on aggregate. Overall, the region contributed 45,900 net payrolls in February, which was 17 percent of the nation's 264,000 payrolls. The combined unemployment rate of District states declined 0.1 percentage point to 6.1 percent. In fact, the unemployment rate fell in all six states, which hasn't occurred in almost two years.
While it's important to look at the aggregate picture when thinking about labor market performance for the entire District, it's also meaningful to hone in on the drivers of that performance. Although the drivers are largely related to the sheer size of the labor force, in the case of February's job growth in Sixth District states, just two states contributed to the bulk of February's job gains (see the chart).
Georgia and Florida carry the weight of job growth
February was a standout month for the Peach State. With 25,400 net payrolls added, Georgia supplied more than half of the jobs of all Sixth District states combined, and was the second largest contributor to job growth in the United States. This over-the-month jobs figure was the most the state added in four years, also crushing its 2014 monthly average of 12,200 net payrolls. Job gains were widespread, but the industries that contributed the most net payrolls in Georgia were retail (up 5,300) and accommodation and food services (up 5,500). In fact, both industries have almost steadily added jobs on net each month in Georgia over the past two years (see the chart).
Not too far behind the Peach State in February was the Orange State, with 19,700 net jobs added. The largest gains came from the government (up 4,800; local government payrolls were up 3,200), retail (up 4,200), and health care and social assistance (up 3,700) sectors. Over the past two years, the retail and health care and social assistance industries, in particular, have contributed solid gains in the state. In reality, Florida has been a consistent contributor to Sixth District jobs growth for several years (see the chart).
Where did the other states stand? In addition to Georgia's 25,400 and Florida's 19,700 payrolls in February, Mississippi contributed 3,500 net jobs. The remaining states subtracted from job growth: Louisiana (down 700), Tennessee (down 800), and Alabama (down 1,200).
Unemployment rate declines in all states
All six states in the District experienced a decline in the unemployment rate in February, which hasn't occurred in almost two years (see the chart). The aggregate figure was 6.1 percent, slowly approaching the national rate of 5.5 percent. February rates by state were as follows: Alabama 5.8 percent, Florida 5.6 percent, Georgia 6.3 percent, Louisiana 6.7 percent, Mississippi 7.0 percent, and Tennessee 6.6 percent.
Keeping an eye on developing trends
I'll be paying attention to future data to spot this year's trends in regional labor market indicators and report back here.
By Rebekah Durham, economic policy analysis specialis t in the Regional Economic Information Network at the New Orleans Branch of the Atlanta Fed
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Tracking Energy’s Trajectory
Last week, the Atlanta Fed's Energy Advisory Council convened to share industry experience during the last several months since gathering in November. I recapped some of the discussion elements following the November meeting here. At that time, the price of oil had declined by about 40 percent since its mid-June 2014 peak. From that time through last week, the pricing trend continued along a downward trajectory (though February saw a slight rise that tapered in March), with both Brent and West Texas Intermediate spot prices down by more than 50 percent from last year's peak (see the chart).
Also, when the council met in November, exploration and production (E&P) firms—marginal producers in particular—were the focus of concern as a result of falling energy prices and had begun to reevaluate business models and technologies and renegotiate cost structures with service providers. At that time, the council acknowledged that sustained or declining oil prices may lead to capital spending reductions. During last week's meeting, the general sentiment descended somewhat, and the discussion shifted from potential to definitive reductions in business activity, investment in particular.
Council members shared their opinion that energy investment had indeed slowed in the region, listing billions of dollars of project delays and cancellations of efforts not already underway, including more than just E&P firms. Oil-field service providers, industrial construction companies, and manufacturers of pipeline and other industrial equipment also felt the effects of low energy prices through reduced business activity. Furthermore, council participants reported that drilling permits for new oil wells declined in the region, which is a national trend that continues in the face of mounting production and supply of oil. (You can see updated drilling rig count information.) This reduced investment is important considering that nationally, energy is a big contributor to gross domestic product growth, as described in a recent Atlanta Fed macroblog post. In a nutshell, expectations for growth in 2015 declined among most advisory council members with direct ties to oil and gas production and/or support. However, they shared a general sense that the industry will see a pick-up after 2015 and that delayed projects will resume.
Conversely, two other sectors represented on the Energy Advisory Council continued to expand. Growth in utilities was strong, particularly the industrial segment, and the petrochemical industry experienced expansion in most business segments. In fact, we continue to receive reports about petrochemical investment along the Gulf Coast from council members and business leaders in the Atlanta Fed's Regional Economic Information Network. These industry exceptions were not a big surprise considering that both industries use oil and gas products as feedstock for operations; for them, lower energy prices are good for business.
So, where is the oil and gas industry headed, and will investment pick back up? Many factors are at play—for example, global economic growth and its relation to supply and demand, geopolitical events, oil storage levels, to name a few—and they are clouding my crystal ball. Nevertheless, on the whole, Energy Advisory Council members indicated that they will continue to approach 2015 cautiously and pay close attention to energy prices as a driver of decisions, and they expect that oil and gas investment and projects will accelerate beyond 2015.
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