SouthPoint

About


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.


12/10/2014


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.

SE-Purchasing-Managers

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

December 10, 2014 in Manufacturing, Southeast | Permalink

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11/13/2014


Signs Point Up for Regional Manufacturing

Have you ever noticed all the signs in the world around you? They are everywhere. Many of them can prompt some deep thought. For instance, I was recently driving to work one morning, and three deer ran out in the road in front of me. Luckily, I didn't hit them, but it made me wonder: Who decides where to put deer crossing signs? How do they know a deer wants to cross the road right there?

Speaking of signs worth your attention, the signs for southeastern manufacturing are pointing up, according to the latest Southeast Purchasing Managers Index (PMI), which was released on November 6. The report suggests that things look pretty strong, and digging into the report, one could conclude that things are even stronger than they initially appear.

The Atlanta Fed's research department uses the Southeast PMI (produced by the Econometric Center at Kennesaw State University) to track manufacturing activity in the Southeast. The survey analyzes current conditions in the manufacturing sector in Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. The Southeast PMI is based on a survey of representatives from manufacturing companies in those states and analyzes trends in 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 PMI increased to 56.5 in October, which was a 1.5 point increase over September (see the chart). Some notable highlights:

  • The new orders subindex remained especially strong in October, registering 64.4, which is a 3.4 point increase over September's 61.0. New orders have averaged a solid 60.7 for the year.
  • The production subindex increased significantly to 67.3 during October, 8.3 points higher than September's reading of 59.0.
  • The employment subindex fell 2.2 points from the previous month. October's reading of 54.8 still indicates that manufacturing payrolls are increasing.
  • The supplier deliveries subindex rose 3.8 points during October, indicating that delivery of inputs is slowing as a result of high demand.
  • The finished inventories subindex fell 5.7 points compared with September and sits at 41.3. The fall in finished inventories suggests that inventory levels are lower than the previous month and could lead to higher orders in the near future.
  • The commodity prices subindex fell to 51.0, a 2.0 point decrease from September.
Southeast Purchasing Managers Index

When asked for their production expectations over the next three to six months, only 21 percent of survey participants expect production to be higher, down from 50 percent in September. According to the survey, 19 percent of survey respondents expect production to be lower than their current production levels. Those responses imply that 60 percent expect production to stay at current levels.

So to recap: The PMI indicates that regional manufacturing has seen strong new orders and production, employments levels are expanding, demand for inputs could be slowing deliveries, inventory levels are falling, commodity prices are essentially flat, and most purchasing managers are expecting to remain at their current levels of production. Although the low production expectations for the next three to six months prevent it from being a perfect set of conditions, they collectively indicate strong manufacturing activity in the near future. Just as with the deer crossing signs, I'll be paying close attention.

By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed's Nashville Branch

November 13, 2014 in Economic conditions, Employment, Inventories, Manufacturing, Prices, Productivity, Southeast | Permalink

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10/16/2014


Southeastern Manufacturing Continues to Expand

The return of fall has not cooled down manufacturing in the Southeast. The Southeast Purchasing Managers Index (PMI), which was released October 5, indicated expansion in the manufacturing sector for the ninth consecutive month.

The Atlanta Fed's research department uses the Southeast PMI to track manufacturing activity in the Southeast. The Econometric Center at Kennesaw State University produces the survey. It provides an analysis of 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 points indicates that manufacturing activity is expanding, and a reading below 50 points indicates that activity is contracting.

The Southeast PMI fell slightly to 55.0 points in September. The index was only 1.7 points lower than August and still solidly above the 50 threshold for expansion (see the chart). The new orders subindex registered a nice increase, and the employment subindex rose, but all other subindexes fell during the month.

  • New orders: The new orders subindex increased 4.5 points over August's levels and has now climbed 15.7 points during the last two months.
  • Production: The production subindex decreased. September's 59.0 reading was 1.2 points below August but was still well into expansionary territory.
  • Employment: The employment subindex inched up 0.5 points compared with the previous month. The employment subindex has now indicated expansion for 12 consecutive months.
  • Supply deliveries: The supplier deliveries subindex declined 3.6 points during September, indicating that manufacturers are receiving their inputs slightly more quickly.
  • Finished inventory: The finished inventories subindex decreased 8.6 points compared with August. The fall completely reversed the previous month's gain of 8.4 points. The subindex is now below 50, implying that purchasing managers are not as concerned about a buildup of inventory levels.
  • Commodity prices: The subindex measuring input price pressures moved down to 53.0, a 5.3 point drop from the previous month.

Se-purchasing-manager-index

Optimism among purchasing managers continued to rise during September. When asked for their production expectation over the next three to six months, 50 percent stated that they expect production to be higher, an increase from 44 percent in August. Only 18 percent of survey respondents expect their production to be lower.

The rise in new orders and strong production numbers bode well for manufacturing heading into the fourth quarter. The Southeast PMI has averaged a 56.6 reading so far this year. Conversely, the national PMI (produced by the Institute for Supply Management) has averaged 55.2. (I should note that the Southeast PMI is not a subset of the national index.) We'll be on the lookout for any changes in activity. After all, it's fall—the season of change.

By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed’s Nashville Branch

October 16, 2014 in Economic conditions, Economic Growth and Development, Manufacturing, Southeast | Permalink

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09/30/2014


What We Heard in Alabama

During the most recent Federal Open Market Committee cycle (which ran from July 31 to September 17), the Atlanta Fed's Regional Economic Information Network (REIN) team at the Birmingham Branch met with business leaders, including branch directors, to discuss economic conditions in Alabama.

General business conditions
Overall, REIN contacts in Alabama see continued slow growth during the next three to six months. We heard accounts of improvement in industrial manufacturing, and commercial construction contacts reported growing demand for office, industrial, and retail space. Contacts in the finance and professional service industries also reported growing demand. Although comments regarding headwinds had grown scarcer during the past few cycles, we heard more mentions of concerns over the effects of “unknowns” from the upcoming elections and international turmoil stemming from recent events in Ukraine and the Middle East.

Employment and labor markets
We heard mixed stories about future hiring plans, ranging from no plans to hire in the near term to substantial hiring plans on the horizon. The chart below illustrates both the short-term and long-term employment momentum by sector. Compared with a year ago, Alabama has seen employment expand in several sectors like manufacturing, construction, health care, private education, and business services. However, sectors such as retail, other services (including automotive repair, personal care services, and business and professional associations, among others), and state government saw momentum contract.

Employment_momentum

In August, Alabama payrolls increased month over month by a seasonally adjusted 8,400 jobs, on net. All sectors gained except retail, which posted a loss of 1,900 jobs, and federal government, which remained unchanged since July. Alabama has seen overall job growth in the last two months, and August's unemployment rate was 6.9 percent (see the chart).

Alabama

That rate is down 0.1 percentage point since July, but it's still higher than the national unemployment rate of 6.1 percent (see the chart).

Unemployment_rates

Costs, prices, and wages
In most cases, our contacts reported only modestly increasing input prices, with the exception of construction materials, which have reportedly risen. No contacts reported the ability to significantly raise prices broadly, but more are reporting passing along selective increases where they can. However, growing price pressure was noted in the transportation sector and with the exception of ocean shipping (which has excess capacity), other transportation segments have reached capacity, with prices consequently rising.

When the conversations shifted to wages, many of our contacts reported that although they are not planning to increase wages, they are carefully watching what other companies are doing. No overarching wage pressure was apparent, although there was mention of wage pressure being reported for select, high-skilled positions. Mostly, contacts reported continued modest pay increases.

Availability of credit and investment
Participants told mixed stories regarding investment plans. We heard reports of idled plants being brought back online and some talk of companies beginning to consider investments that would increase production capacity. However, we also heard some discussion about companies that had been investing through the downturn considering moderating investments. Additionally, several contacts noted continued challenges in obtaining financing for smaller builder/developer projects.

Our conversations will continue in Alabama, and we'll relay them to you in the future. In the meantime, what are you hearing?

Photo of Teri Gafford By Teri Gafford, a REIN director,


and Susan Remy, a REIN analyst, both at the Atlanta Fed's Birmingham Branch

September 30, 2014 in Alabama, Economic conditions, Manufacturing | Permalink

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09/11/2014


Southeastern Manufacturing: Back in the Fast Lane

If you're a fan of auto racing, you're probably familiar with drivers trying to conserve gas. One mental trick they use when in conservation mode is to accelerate like there is an egg between their foot and the gas pedal. This technique prevents the driver from wasting fuel by accelerating too fast, or too slow. Manufacturing in the Southeast had been easing off the gas pedal the last couple of months, but according to the latest Southeast purchasing managers index (PMI), manufacturing activity recently refueled, and the egg has been tossed out the window. The Southeast PMI, while still expanding, had seen decreases in the overall index during May, June, and July. The August report, released on September 5, indicated that activity reversed course and is now accelerating.

The Atlanta Fed's research department uses the Southeast PMI to track manufacturing activity in the region. 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 Southeast PMI increased to 56.7 points in August, a 5.4 point increase over July (see the chart). The PMI report saw significant gains in a few of the underlying variables:

  • New orders: The new orders subindex increased 11.2 points during July and is now back in expansionary territory. The significant gain in August went a long way in reversing the 14.1 point decline in July.
  • Production: The production subindex also rebounded into expansionary level; increasing 12.1 points from July to August.
  • Employment: The employment subindex fell 3.9 points compared with the previous month. However, employment remained in expansionary territory for the 11th consecutive month, indicating that manufacturers continue to increase payrolls.
  • Supply deliveries: The supplier deliveries subindex fell 1.0 point during August, suggesting that manufacturers are receiving their inputs slightly quicker.
  • Finished inventory: The finished inventories subindex rose 8.4 points compared with July, suggesting that inventory levels are slightly higher than ideal for manufacturers.
  • Commodity prices: Input price pressures changed only slightly, increasing 0.8 points in August to 58.3. The commodity price subindex continues to suggest moderate price pressures in the manufacturing sector.

Southeast_purchasing

When asked for their production expectations during the next three to six months, 44 percent of survey participants expect production to be higher, up from 40 percent in July. Optimism among manufacturing contacts has increased the last couple of months, after falling to 34 percent in June.

It's encouraging to see a pick-up in southeastern manufacturing activity. The national PMI (produced by the Institute for Supply Management) reached 59.0 points in August, its highest level in more than three years. (I should note that the Southeast PMI is not a subset of the national index.) Hopefully, activity in the Southeast can follow suit and continue to rise. It's also good that we got the egg removed from the car. They belong on the breakfast table (scrambled for me, not fried), not on the accelerator.

By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed's Nashville Branch

September 11, 2014 in Manufacturing, Southeast | Permalink

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08/15/2014


Taking Tennessee's Temperature

During the most recent cycle of the Federal Open Market Committee (which ran from June 19 to July 30), the Atlanta Fed's Regional Economic Information Network (REIN) team at the Nashville Branch met with business leaders, including branch directors, to discuss economic conditions.

General business conditions
Our REIN contacts in Middle and East Tennessee remain optimistic about the prospects for their businesses and the general economy. Most have a positive outlook and report solid growth in customer demand.

Our contacts also indicate that manufacturing is expanding robustly, with the sector running at nearly full capacity, especially the auto industry. A large building-materials manufacturer expects faster growth in the second half of 2014 as the construction industry recovers from the weather-related disruptions earlier in the year. In the Nashville area, both the commercial and residential real estate markets are doing well, benefiting from the low interest rate environment, strong net in-migration, and rising household incomes as the employment picture improves.

Employment and labor markets
Employment growth has accelerated in Tennessee during the past year, and growth momentum is strong across most major metropolitan areas in the state (see the chart).

Tnemployment_momentum

Middle Tennessee State University's Business and Economic Research Center produces a heat map of Tennessee's employment growth by industry (based on U.S. Bureau of Labor Statistics data) that nicely illustrates what we've been hearing from our business contacts: namely, employment in construction, professional and business services, and leisure and hospitality has been outpacing growth in other industries.

As the labor market improves, businesses are increasingly sharing stories about the difficulties companies face in finding qualified workers across a broad skill spectrum. In addition, several companies have expressed concern that replacing skilled employees who are nearing retirement age will be challenging. Consequently, companies appear to be expanding internal training programs to deal with existing and potential skill shortages.

In addition to our meetings with business executives, we polled a number of mostly larger firms to find whether they experienced difficulty filling open positions. Out of 21 respondents, two-thirds said yes. Seventy percent of those respondents said that they have raised offer wages to attract new hires.

We also conducted a brief poll of 32 of our construction industry contacts. On the residential side, 75 percent indicated that it is now more or much more difficult to find skilled labor compared to the mid-2000s. Skilled labor availability is even tighter in commercial real estate—nearly 85 percent of respondents said finding skilled workers now is more difficult.

Costs/prices/wages
We have not heard of any pick-up in materials and other nonlabor input costs but, as mentioned above, the shortage of skilled applicants is putting upward pressure on offer wages. Several manufacturing contacts said that they increased their starting wages along with peer companies in their geographic area.

In the construction industry in particular, labor cost pressures on the residential side have increased compared to the mid-2000s for almost two-thirds of respondents to our poll. Moreover, labor cost pressures have intensified for more than three-fourths of the commercial builders we've polled.

Availability of credit and investments
In the same poll, two-thirds of the homebuilders and residential brokers said it is more or much more difficult to obtain financing for construction projects compared with the mid-2000s. And everyone on that panel said that it is more or much more difficult to obtain financing for land/lot development. Financing conditions are a bit easier for commercial builders (see the chart).

Tnconstruction_poll

One national commercial construction firm said that financing conditions are actually easier for them now than 10 years ago. Notably, equity financing is becoming more prominent in a number of sectors as investors are looking for higher returns than they can get at financial institutions, and banks' lending standards remain rigorous.

All this said, the positive sentiment among our business contacts in Middle and East Tennessee could possibly also signal continued improvement in the health of the national economy, given that the structure of Tennessee's economy for the most part resembles that of the United States' as a whole. Be sure to check back here as we'll periodically update the Middle and East Tennessee economy.


Photo of Galina Alexeenko By Galina Alexeenko, a Regional Economic Information Network director in the Atlanta Fed's Nashville Branch

August 15, 2014 in Economic conditions, Economic Indicators, Economy, Manufacturing, Southeast | Permalink

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08/12/2014


Is Southeastern Manufacturing Leveling Off?

Manufacturing in the Southeast has been relatively strong in 2014. According to the Southeast Purchasing Managers Index (PMI), manufacturing activity expanded every month this year. The latest report, released on August 5, indicated that activity continued to expand in July. However, a couple of important indicators took a large step back from their recent highs.

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 provides an analysis of 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 Southeast PMI fell 4.0 points in July compared with June, but the overall reading remained above the 50 threshold at 51.3 (see the chart below). July was the third consecutive month the overall index has declined. Some notable aspects from the survey:

  • New orders: The new orders subindex and production subindex decreased significantly last month, declining 14.2 points. The large month-over-month decrease in new orders, while not ideal, is not entirely unusual. During the last three years, the subindex has experienced similar swings during the summer months. For instance, new orders fell 22.6 points during May and June 2012 and 11.7 points in July 2013. Still, the 24.3 point decrease over the last two months is significant.
  • Production: The production subindex fell 8.5 points from June to July, and it historically has followed a similar pattern to new orders, experiencing notable falls during the summer. Meanwhile, factories appear to be increasing payrolls.
  • Employment: The employment subindex rose 1.9 points compared with the previous month.
  • Supply deliveries: The supplier deliveries subindex fell 3.8 points compared with June, suggesting that manufacturers are receiving their inputs slightly quicker.
  • Finished inventory: The finished inventories subindex rose 4.7 points during July, indicating inventory levels are slightly higher.
  • Commodity prices: Input prices fell 0.9 points in July to 57.5, suggesting that moderate price pressures continue.

Se_purchasingmanagers

Manufacturing contacts' optimism remained subdued during July. When asked for their production expectations, 40 percent of survey participants expect production to be higher in the next three to six months. That level is up from June's mark of 34 percent.

So is the stage set for another decrease in August? That's hard to say. During the last few years, manufacturing activity has tended to pull back this time of year. The national PMI, produced by the Institute of Supply Management, hit its highest level in more than three years during July. (I should note that the Southeast PMI is not a subset of the national one). That movement bodes well for the national picture and should help bolster activity in the South. It's always important to remember that although manufacturing activity may be leveling off, it is still expanding overall. So don't fret—enjoy what remains of the summer!

By Troy Balthrop, a senior Regional Economic Information Network analyst in the Atlanta Fed's Nashville Branch

August 12, 2014 in Economic conditions, Manufacturing | Permalink

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07/25/2014


Auto Sales Accelerating

"My pappy said 'Son, you're gonna drive me to drinkin' if you don't stop drivin' that hot rod Lincoln.'"
—Charley Ryan, 1958

Automobiles have loomed large in the American experience since Henry Ford's Tin Lizzie—the fabled Model T—first rolled off the assembly line in 1908. Back in the 1940s and 1950s, a favorite pastime of American youth was hot-rodding (or so I've been told by my much, much older siblings). Cars have inspired countless songs, including Charley Ryan's "Hot Rod Lincoln" and "Beep, Beep," a tempo-changing ditty from 1958 about a Nash Rambler and a Cadillac. And in the 1973 movie American Graffiti, who can forget the iconic 1932 Deuce Coupe driven by John Milner or Toad's 1958 Impala? It was all about the cars!

And it appears consumers feel pretty much the same way. The one shining star throughout this recovery in the wake of the Great Recession has been the growth in unit sales of motor vehicles. I think it's safe to say that folks are buying new rides; it's just that simple. Although retail sales have been growing modestly, motor vehicle sales have been one of the driving forces (OK, yes—pun intended) behind the upward movement seen overall.

Light vehicle sales continued rising in June, reaching a postrecession high of 16.9 million units (the seasonally adjusted annual rate; see the chart).

This growth can also been seen when looking at consumer credit outstanding. Consumer credit is debt that a consumer enters into with the intent of making an immediate purchase. There are two types of consumer credit: revolving and nonrevolving. Let's look for a moment at nonrevolving credit, which is defined as an installment loan in which the amount borrowed (plus interest) is repaid at set intervals for the life of the loan. As the chart below shows, nonrevolving credit has been growing over roughly the same period as vehicle sales, which is not surprising when you consider that vehicle loans account for roughly 40 percent of this type of credit.

According to the U.S. Census Bureau, automobile sales declined 0.2 percent in June. However, a year-over-year comparison shows that vehicle sales increased 7.0 percent (see the chart). The consensus among our regional auto dealer contacts have indicated they've seen a steady increase in year-to-date sales and are expecting "sales for the remainder of the year to be fairly robust."

Historically, auto sales fluctuate quite a bit. But as you can see, the chart above supports the claim that vehicle sales have shown strong growth compared with total retail sales since the end of the recession. These data provide insight into consumer spending trends. Although this is just one data series in a long list of economic indicators we follow, I think it's fair to say this one gives a better understanding of consumer behavior.

So we'll keep our eye on this indicator. And remember, "Beep-beep, beep-beep. His horn went beep-beep-beep."

Photo of Chris Viets By Chris Viets, a REIN analyst in the Atlanta Fed's Jacksonville Branch

July 25, 2014 in Automobiles, Manufacturing, Retail, Transportation | Permalink

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07/10/2014


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.

Southeast Purchasing Managers Index

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


July 10, 2014 in Employment, Inventories, Manufacturing, Productivity, Southeast | Permalink

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06/12/2014


Southeast Manufacturing Rides a Wave in May

The most recent Southeast Purchasing Managers Index (PMI) indicated that manufacturing activity continued to expand in May. The latest report, released on June 5, put the overall index at 59.8 points. Although the May index was 3.4 points below April’s 63.2 level, it was still well above the 50-point threshold, indicating expansion in the manufacturing sector.

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.

All components of the Southeast PMI decreased during May, but for the most part, only slightly (see the chart):

  • The new orders subindex fell 2.8 points from April but remained a solid 69.6. A high new orders subindex is a good sign that future production activity will be robust.
  • The production subindex fell 0.7 points compared with April, but like new orders, it remained strong with a reading of 67.4. The high production subindex suggests that factories are currently busy, Coupled with the elevated new orders subindex, manufacturing firms stand a good chance of remaining busy in the months to come.
  • The employment subindex declined 0.8 points from April to 63 but still indicates that manufacturing payrolls are increasing.
  • The supplier delivery subindex also suggested strengthening in the sector. While it fell 5.2 points to 57.6, it remains solidly in expansionary territory—an indication that demand for inputs among manufacturers is healthy.

A notable aspect in the PMI report was the responses to the survey question concerning future production. When asked about their production expectations over the next three to six months, only 41 percent of purchasing managers expect production to be higher. That rate is somewhat out of line with the strong new orders numbers we’ve seen, but maybe some underlying elements are dampening purchasing managers’ optimism.

The Southeast PMI has averaged a reading of 61.5 during the last three months. That level represents the strongest three-month average since early 2012. Let’s hope that manufacturing activity can continue to ride the wave and not wipe out this summer.

By Troy Balthrop, a senior Regional Economic Information Network analyst in the Atlanta Fed’s Nashville Branch


June 12, 2014 in Employment, Inventories, Manufacturing, Productivity, Southeast | Permalink

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