Georgia Purchasing Managers Index slips for first time in five months

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Georgia Purchasing Managers Index slips for first time in five months New orders and production dip…

Georgia (Jul 1, 2009)Georgia Purchasing Managers Index slips for first time in five months
New orders and production dip after months of gains; employment declines‚ says KSU economics professor

KENNESAW‚ Ga. (June 3‚ 2009) — Manufacturing activity in Georgia declined slightly in May‚ after four consecutive months of gains‚ according to the Econometric Center at Kennesaw State University’s Michael J. Coles College of Business.

Georgia’s Purchasing Managers Index (PMI) — a reading of economic activity in the state’s manufacturing sector — for May was 48.0‚ a decrease of six−tenths of a point from April. At under 50‚ this reading illustrates that manufacturing is still contracting‚ though at a much slower rate than in the fourth quarter of 2008. The PMI is still up 21.2 points for the year.

“After months of improvement‚ this last reading is a disappointment‚” said Don Sabbarese‚ professor of economics and director of the Econometric Center at the Coles College of Business. “The good news is that manufacturing is contracting much slower than it was last year.”

Employers are still cautious about hiring and not making plans for the long term‚ Sabbarese said. Manufacturing companies in Georgia lost 50‚000 jobs between April 2008 and April 2009.

Highlights of the May PMI include:
• New orders decreased by 7.3 points‚ to 45‚ due to an increase in the number
of survey respondents reporting lower new orders;
• 45 percent of respondents reported lower new orders‚ up from 27.3 in April;
• Production declined by 4.8 points‚ to 47.5;
• 40 percent of respondents reported lower production‚ up from 27.3 in April;
• Employment dropped 3.2 points‚ to 40;
• Only 5 percent of survey participants are hiring;
• Commodity prices in May were up again‚ by 6.4‚ to 45.

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 it is contracting.

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 Coles College’s Econometric Center but does not go into the PMI calculation.

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

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 May PMI‚ or to speak with professor Sabbarese‚ please call (770) 423−6094.

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