Georgia manufacturing activity continues on slower growth path for past three months

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New orders and production increased as employment, supplier delivery time and inventories fell

KENNESAW, Ga.  (July 1, 2013) — Georgia manufacturing activity continues to experience slower growth in June, 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 June PMI of 52.1 is 1.7 points lower than May and 3.4 points below its six-month average of 55.4, said Don Sabbarese, director of the Econometric Center and professor of economics at Kennesaw State. Georgia’s June PMI is still ahead of the national index of 50.9, however.

While new orders and production both increased 2.1 points to 60.4 and 56.3 respectively for Georgia manufacturers, employment fell 2.1 points to 52.1 and finished inventory decreased 6.3 points to 43.8.

According to Sabbarese, it is rather unusual for Georgia’s new orders and production to increase, as it has for the last three months, as finished inventory decreased. 

“More often, new orders and inventories move in the same direction, unless manufacturers have reason to expect slower demand in the future,” he said. “One answer for this contrarian inventory movement is that fewer manufacturers expect production to increase in the next three to six months, which could be why they are drawing down on inventory.” 

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 three months, he added.

Sabbarese believes that if the manufacturers’ outlook persists, it may not be a good sign that manufacturing’s slow growth will improve in the near future. He said many factors can impact this outlook. 

“The uncertainty of foreign markets, Federal Reserve policy, and other government policies continues to limit the ability of businesses to forecast future market conditions,” Sabbarese said.

Other highlights from the June PMI:

·         New orders up 2.1 points to 60.4, 0.1 point above its six-month average

·         Production up 2.1 points to 56.3, 0.6 point below its six-month average

·         Employment down 2.1 points to 52.1, 1.5 points below its six-month average

·         Supplier delivery down 4.2 points to 47.9, 3.9 points below its six-month average

·         Finished inventory down 6.3 points to 43.8, 11 points below its six-month average

·         Commodity prices down 2.1 points to 45.8, 9.8 points below 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. 

For a full report of the June PMI or to speak with Don Sabbarese, call 770-262-5786. 

 

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Kennesaw State University is the third-largest university in Georgia, offering 80 graduate and undergraduate degrees, including doctorates in education, business and nursing, and a new Ph.D. in international conflict management. A member of the University System of Georgia, Kennesaw State is a comprehensive, residential institution with a growing population of 24,600 students from more than 130 countries.