Georgia manufacturing index slips in December


PMI falls 2.6 points even as new orders, production and employment continue to improve KENNESAW,…

Georgia (Jan 3, 2011)PMI falls 2.6 points even as new orders, production and employment continue to improve

KENNESAW, Ga. (Jan. 3, 2011) —  Manufacturing activity in Georgia continued to decline in December after a November rebound, 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 December was 53.7, down 2.6 points from the previous month’s level of 56.3. The latest PMI reading reversed the rebound of 6 points that the index reported in November after three consecutive months of decline. The PMI is up 7.6 points for 2010, up from 46.1 in January.

“Strong export demand, capital spending by businesses and some improvement in the auto industry are a few of the factors responsible for the turnaround in manufacturing over the past year,” said Don Sabbarese, professor of economics and director of the Econometric Center at the Coles College of Business. “The latest Georgia manufacturing figures, however, are below the national PMI.”  

Despite improvements in new orders, production and employment, the PMI declined in December due to a sharp drop in inventory and delivery time. Inventory and delivery time normally go up when new orders and production increase but in December they reacted contrary to normal, said Sabbarese. This could be because the trucking industry may have expanded its operations to accommodate the rise in new orders and production.

All of the PMI’s underlying variables, except for employment, were below their six-month averages. Optimism seems to be down too: some 37 percent of respondents said they expected higher production in the next three to six months, compared to 46 percent in November.

             Highlights of the December PMI include:

·        New orders were up by 1.4 points, to 59.3

·        Production increased 0.6 point, to 53.7  

·       Hiring is up 3 points, to 59.3, with 30 percent of respondents reporting increased hiring

·       Commodity prices were up by 4.5 points, to 68.5. Some 37 percent of respondents reported higher          prices

·        Finished inventory plummeted 12.4 points, to 40.7, its lowest level since June

·       Supplier delivery time dropped 5.4 points, to 55.6

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 December was 57, up 0.4 point.

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 December PMI, or to speak with professor Sabbarese, please call 770-423-6094. 





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