Georgia Manufacturing Activity Drops for 5th Consecutive Month

Dr. Don Sabbarese

Thursday, September 5th, 2013

Georgia’s manufacturing experienced a drop in August, resulting in the fifth consecutive month of decline, according to the Purchasing Managers Index (PMI) released today by Kennesaw State University’s Econometric Center in the Michael J. Coles College of Business.

Georgia’s PMI of 48.5 dropped one point for August, falling 7.2 points below the National PMI of 55.7, which experienced a slight increase of 0.3 points for August.  This is the second consecutive month that Georgia’s PMI has rested below 50, and 4.9 points below its six-month average of 53.4, according to Don Sabbarese, director of the Econometric Center and professor of economics at Kennesaw State.

“Georgia’s new orders rebounded for August, but production and employment weaknesses are a concern, given their drop of 11.3 and 7.1 points, respectively, below their June readings,” said Sabbarese. 

While nationally the index appears to show a more positive picture, according to Sabbarese, there are signs of weakness in the national picture similar to what Georgia is experiencing.

“The July Industrial Production report for national manufacturing showed a strong decrease in automobile production, which was the primary cause of a 0.1 percent drop, which computes to an annualized decrease of 1.1 percent,” he said. “The high-tech sector was the only sector nationally to record solid growth in July.”

This observation is drawn from a survey question that asked respondents about their anticipated production for the next three to six months. The percent of manufacturers expecting an increase has dropped for the last four months, he added.

Other highlights from the August PMI:

·         New orders up 7.0 points to 52.5, 5.0 points below its six-month average

·         Production down 0.5 of a point to 45, 7.7 points below its six-month average

·         Employment down 5.0 points to 45, 7.4 points below its six-month average

·         Supplier delivery down 11.6 points to 47.5, 4.0 points below its six-month average

·         Finished inventory up 4.8 points to 52.5, 0.5 of a point below its six-month average

·         Commodity prices up 12.5 points to 62.5, 11.3 points above its six-month average

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 11 percent of GDP, is sensitive to changes in the economy, it can also reveal changing macroeconomic trends. 

The Georgia PMI provides data used by institutions such as the Federal Reserve Bank of Atlanta to assist in its analysis of current economic conditions, along with many other data sources, to get a picture of economic activity. 

About Dr. Don Sabbarese

Dr. Donald Sabbarese specializes in the area of macroeconomics and financial institutions at Kennesaw State University. He directs the Georgia Purchasing Managers Survey and other research involving the local economy, such as industry surveys and economic impact studies. His work at the Econometric Center has been reported in the regional and national media. He is a frequent speaker to business and civic groups and has contributed to local magazines and other news media outlets. Dr. Sabbarese has testified before Georgia legislative committees on matters related to bank legislation.