Georgia Purchasing Managers Index (PMI) for October continues sharp decline

Georgia Purchasing Managers Index (PMI) for October continues sharp decline PMI reading at seven…

Georgia (Nov 5, 2008) — Georgia Purchasing Managers Index (PMI) for October continues sharp decline

Aixa Pascual

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Georgia Purchasing Managers Index (PMI) for October continues sharp decline
PMI reading at seven−year low; production and new orders fall sharply‚ employment exceptionally low‚ says KSU economics professor


KENNESAW‚ Ga. (Nov. 4‚ 2008) — Manufacturing activity in Georgia contracted sharply in October‚ reaching its lowest level since November 2001‚ according to the Econometric Center at Kennesaw State University’s Michael J. Coles College of Business. November 2001 was the lowest point in the 2001 recession.

Georgia’s Purchasing Managers Index (PMI) — a reading of economic activity in the state’s manufacturing sector — for October was 34‚ a decline of 5.6 points from September. This reading is at a seven−year low‚ and is consistent with the 0.3 percent decrease in third quarter Gross Domestic Product (GDP) and may presage a similar result for the fourth quarter.

“Should the PMI readings remain at these levels‚ it could be a harbinger that the fourth quarter GDP may register its second consecutive quarter of negative growth‚ confirming that we are already in a recession‚” said Don Sabbarese‚ professor of economics and director of the Econometric Center at the Coles College of Business. “The manufacturing sector remains frozen‚ waiting for some sign of improvement.”

Sharp decreases in new orders (down by 10.2 points) and production (down by 8.8 points) continue to lead the other PMI components –– employment‚ deliveries and finished inventory –– into a tailspin. Only 10 percent of survey participants reported higher new orders in October. Similarly‚ only five percent of respondents reported higher production. For the second consecutive month‚ no survey participants reported growth in employment.

Manufacturers are nervous about tightness in the credit markets and a looming recession in the U.S. and globally. Uncertainty about the extent and duration of economic problems has forced a wide range of survey respondents to put their business decisions on hold‚ Sabbarese said.

The PMI‚ as a diffusion index‚ measures the breadth and not the depth of the state of the manufacturing sector. Weakness has not been this widespread seen since 2001‚ Sabbarese said.


The Georgia PMI provides a snapshot of manufacturing activity in the state‚ just as the monthly PMI released by the Institute for Supply Management provides a picture of national manufacturing activity. A PMI reading above 50 indicates that manufacturing activity is expanding. A reading below 50 indicates the manufacturing industry is contracting.

The latest Georgia PMI reinforces a downward trend‚ with both the Georgia and national PMIs falling well below 50. The national PMI reading for October is 38.9 percent‚ a decline of 4.6 points from September. This was the third consecutive month that economic activity in the national manufacturing sector failed to grow.

The Georgia PMI reading is a composite of five variables — new orders‚ production‚ employment‚ supply deliveries and finished inventory. A sixth variable‚ commodity prices‚ is compiled by the Econometric Center but doesn’t go into the PMI calculation.

The only bright spot in October’s PMI: The commodity price index hit its lowest level since November 2001‚ declining by 39.8 points. But while cheaper commodity prices lower the cost of production‚ it is symptomatic of lower demand due to a global economic slowdown.

In October‚ all five Georgia PMI variables showed continued weakness‚ with no clear sign of a recovery. The deterioration in new orders over the last four months‚ with concurrent sharp reductions in production and employment‚ suggests that a large majority of survey participants have no confidence that current market conditions will change anytime soon. Broader weakness in the economy and financial sector gives additional credence to this observation.

The PMI‚ compiled from a monthly survey of manufacturers‚ is the earliest indicator of market conditions in the sector. Since manufacturing is sensitive to changes in the economy‚ it can also reveal changing macroeconomic trends‚ even if manufacturing accounts for 13 percent of gross domestic product (GDP).

The PMI’s value is in its timeliness and sensitivity to variables such as interest rates‚ global markets and other economic changes. The Georgia PMI provides valuable data used by institutions such as the Federal Reserve Bank of Atlanta to assist in their analysis of current economic conditions‚ along with many other data sources‚ to get a picture of economic activity.

For a full report of the October PMI‚ or to speak with professor Sabbarese‚ please call (770) 423−6094.

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Kennesaw State University is the third−largest university in Georgia‚ offering more than 65 graduate and undergraduate degrees‚ including new doctorates in education and business. A member of the 35−unit University System of Georgia‚ Kennesaw State is a comprehensive‚ residential institution with a growing student population of more than 21‚000 from 142 countries.



 

A leader in innovative teaching and learning, Kennesaw State University offers more than 150 undergraduate, graduate and doctoral degrees to its approximately 41,000 students. With 11 colleges on two metro Atlanta campuses, Kennesaw State is a member of the University System of Georgia and the third-largest university in the state. The university’s vibrant campus culture, diverse population, strong global ties and entrepreneurial spirit draw students from throughout the region and from 92 countries across the globe. Kennesaw State is a Carnegie-designated doctoral research institution (R2), placing it among an elite group of only 6 percent of U.S. colleges and universities with an R1 or R2 status, and one of the 50 largest public institutions in the country. For more information, visit kennesaw.edu

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