Georgia manufacturing index falls for fourth consecutive month
Decline of 6.2 points in July offers stronger evidence of weakness in manufacturing sector KENNESAW…
Georgia (Aug 1, 2011) — Decline of 6.2 points in July offers stronger evidence of weakness in manufacturing sector
KENNESAW, Ga. (Aug. 1, 2011) — Manufacturing activity in Georgia fell dramatically in July, capping four consecutive months of decline, 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 July was 50.7, down 6.2 points from June. The PMI has lost 13.9 points in the last two months. In July, employment fell a whopping 12.5 points, to 50. New orders fell 8.3 points, to 50; production fell 8.1, to 51.7.
“The improvement in Georgia’s manufacturing sector that we saw in the first quarter of 2011 has been reversed over the last two months,” said Don Sabbarese, professor of economics and director of the Econometric Center at the Coles College of Business. “What seemed like a rough patch in the second quarter is now extending into the second half of the year.”
Sabbarese said that the decline in manufacturing could be caused by problems in the supply chain of Japan’s auto industry. “Hopefully, as the automobile industry recovers in the second half of 2011, manufacturing will reverse the lost momentum of the last two months,” he added.
The softness in manufacturing activity over the past few months may be making survey respondents nervous, based on the weakness in employment, new orders and production over several months, Sabbarese explained. For the months of June and July, employment is down 16.7 points, new orders 17.9 points and production 16.2 points. All of the Georgia PMI’s underlying components have fallen below their six-month averages.
Other highlights of the July PMI include:
· Between May and July, the percentage of respondents reporting higher new orders fell from 46.2 to 23.3
· Between May and July, the percentage of respondents reporting higher employment fell from 38.5 to 13.3
· Between May and July, the percentage of respondents reporting higher production fell from 41 to 20
· Commodity prices decreased 18.3 points, to 56.7
· Finished inventory decreased 4.2 points, to 50
· Supplier delivery time increased 1.7 points, to 51.7
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 was down 4.4 points, to 50.9, in July.
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 July PMI, or to speak with professor Sabbarese, please call 770-423-6094.
A leader in innovative teaching and learning, Kennesaw State University offers more than 150 undergraduate, graduate and doctoral degrees to its more than 41,000 students. With 11 colleges on two metro Atlanta campuses, Kennesaw State is a member of the University System of Georgia and the second-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 126 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. For more information, visit kennesaw.edu.