Georgia manufacturing index at highest level in nearly two years

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  PMI up by double digits, to highest level since April 2008, due to across-the-board…

Georgia (Mar 1, 2010) —  

PMI up by double digits, to highest level since April 2008, due to across-the-board improvements, says KSU economics professor

                                                                                                                          
KENNESAW, Ga. (March 1, 2010)  —  Manufacturing activity in Georgia improved substantially in February, recording its highest reading since April 2008, according to the Econometric Center at Kennesaw State University’s Coles College of Business. 
 
Georgia’s Purchasing Managers Index (PMI) — a reading of economic activity in the state’s manufacturing sector — for February was 56.4, up an impressive 10.3 points from January, as new orders, production, employment and finished inventory all showed strong gains. February’s 56.4 reading is 8.8 points above the PMI’s six-month average and is more in line with the national PMI, which recorded 56.5 for February.
 
“Manufacturing activity grew by leaps and bounds in February,” said Don Sabbarese, professor of economics and director of the Econometric Center at the Coles College of Business. “The gains in employment, finished inventory and other variables were very strong. This may be the shot in the arm that Georgia manufacturers were waiting for.”
 
But it is still too early to tell if this upward trend is sustainable. “We don’t know yet if this is an aberration, given the PMI’s consistent readings under 50 for the past two years,” Sabbarese said. “Should this trend continue for another two or three months, it would give a clearer signal that these manufacturers are on their way to a stronger recovery.”
 
Highlights of the February PMI include:
 
·        Finished inventory showed substantial improvement, growing by 21.1 points to 50. The percentage of survey respondents reporting higher inventory grew to 24.2, up from 5.3 in January. This could be the beginning of a long-term inventory buildup.
·         Employment was up 11.1 points, to 54.5, the highest reading since July 2007. Employment finally rose above 50, with 18.2 percent of survey respondents hiring more workers and only 9.1 percent showing a decline in employment. Employment is 7.7 points above its six-month average.
·         New orders jumped by 7.3 points, to 65.2. Some 45.5 percent of respondents reported higher orders, and only 15.2 percent reported a decline in new orders.
·        Production more than matched new orders, rising by 11.3 points to 56.1. Only 18.2 percent of respondents saw a decline in production, compared to 36.8 in January. Some 30.3 percent reported a rise in production for February.
 
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 national PMI for February was 56.5, down 1.9 points from January.
 
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 11 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 February PMI, or to speak with professor Sabbarese, please call (770) 423-6094. 
 
 


 

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