Georgia manufacturing index slips 6 points in June

Sabbaresepicture1.JPG

 

 

But employment remains strong and commodity prices drop significantly, says KSU economics professor
KENNESAW, Ga. (July 1, 2010) —  Manufacturing activity in Georgia declined in June after months of solid gains, 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 June was 57.4, down 5.8 points from May’s reading of 63.2, reversing the index’s sharp gains of the past five months. The June reading is half a point below the PMI’s six-month average.
 
It is too early to tell if June’s PMI reflects a one-time adjustment or marks the beginning of a slowdown for manufacturing. But the boost in employment –– up by 2 points, to 64.5, and 7 points above its six-month average  –– is encouraging.
 
“Hiring continues to show impressive gains, and this is very positive going forward,” said Don Sabbarese, professor of economics and director of the Econometric Center at the Coles College of Business. “If employment were to falter in the near future, along with new orders and production, then a stronger argument could be made for a decline. Swings from month to month are to be expected.”
 
Sabbarese said the national and Southeast PMIs also experienced similar patterns for June. “The persistent oil crisis in the Gulf and the economic problems in Europe are creating uncertainty for manufacturers,” he explained. “The next couple of months should paint a clearer picture of how these events will affect manufacturing.”
 
Highlights of the June PMI include:
 
·         New orders for June were down by 8.7 points, to 64.5, but remain strong. Some 41.9 percent of survey respondents reported higher new orders, down by almost 12 points from May
·         Production declined by 9.6 points, to 56.5, trailing new orders
·         Hiring continued to make gains in June, with 32.3 percent of survey respondents reporting new hiring –– an increase of 3.7 points over May. Gains in employment are inconsistent with the drop in all other underlying variables
·         Commodity prices fell significantly, by 23.6 points, to 53.2. This is an astounding 30.4 points below April’s reading of 83.6
·         Finished inventory declined by 10.9 points, to 35.5. The simultaneous slips in production and inventories suggest manufacturers are meeting some of their new orders by reducing inventory
 
 
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 June was 56.2, down 3.5 points from May.
 
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 June PMI, or to speak with professor Sabbarese, please call (770) 423-6094.