Index is up for third consecutive month; new orders, production and employment show dramatic increase, says KSU economics professor.

Georgia Purchasing Managers Index (PMI)
for March continues upward trend

KENNESAW, Ga., (April 2, 2009) — Manufacturing activity in Georgia continued to improve for the third consecutive month, driven by healthy increases in new orders, employment and production, according to the Econometric Center at Kennesaw State University’s Michael J. Coles College of Business.

Georgia’s Purchasing Managers Index (PMI) — a reading of economic activity in the state’s manufacturing sector — for March was 45.4, an increase of 5 points from February. This reading illustrates that manufacturing is contracting, but at a slower rate than it was last year, and caps three months of gains for the Georgia PMI. The PMI is up 18.6 points this year.

“The latest numbers reveal that manufacturing shrank at a slower rate in the first quarter of 2009,” said Don Sabbarese, professor of economics and director of the Econometric Center at the Coles College of Business. “The gradual improvement in the sector, after months of decline, is good news.”

Double-digit increases in new orders, production and employment drove the rise in the PMI. New orders were up by 10.7 points, to 51.8; production was up 12.5 points, to 51.8; and employment was up by 10.7 points, to 41.1. Considerably fewer of the survey participants reported lower levels in new orders, production and employment. (The PMI is a diffusion index, so it does not measure the quantitative size of increases in the variables, but the percentage of survey participants experiencing increases versus no change and decreases.)

Employment remains low and firms will need to be convinced that this uptick in new orders will continue over a longer period of time before they start reversing layoffs and hiring freezes. “We are not close to that point yet,” Sabbarese said.

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.

Georgia’s PMI of 45.4 is now 9.1 points above the national PMI of 36.3. Georgia’s new orders, production and employment are currently higher than the national readings. Since the Georgia PMI historically has been more volatile than the national PMI, more data is needed to verify if this higher trend is just an aberration or the two measures will move closer together in the future.

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 13 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 March PMI, or to speak with professor Sabbarese, please call (770) 423-6094.

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Kennesaw State University is the third-largest university in Georgia, offering more than 65 graduate and undergraduate degrees, including new doctorates in education and business. A member of the 35-unit University System of Georgia, Kennesaw State is a comprehensive, residential institution with a growing student population of more than 21,000 from 142 countries.