Georgia Purchasing Managers Index for April up for fourth consecutive month

PMI continues upward trend, fueled by sharp growth in finished inventory, says KSU economics professor

KENNESAW, Ga. (May 1, 2009 ) — Manufacturing activity in Georgia continued to improve for the fourth consecutive month, driven primarily by a healthy boost in finished inventory, as well as by a slight improvement in new orders, production and employment, 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 April was 48.6, an increase of 3.2 points from March. This reading illustrates that manufacturing is contracting, but at a much slower rate than it was in the fourth quarter of 2008. The PMI is up 21.8 points this year.

“The latest numbers indicate that the improvement over the last four months may indeed be sustainable. Manufacturing is still contracting, but it’s doing so at a much slower pace than it was last year,” said Don Sabbarese, professor of economics and director of the Econometric Center at the Coles College of Business. “Each month the index improves is encouraging.”

Finished inventory grew by a dramatic 13 points in April, to 52.3, the highest level in 11 months. In April, 22.7 percent of survey respondents reported a reduction in inventory, compared to 42.9 percent in March. Inventory, however, can be pretty volatile and it is not clear whether the growth was planned or not. Since new orders and production have been increasing over the last few months, and since inventory reduction in the first quarter GDP report was substantial, it may be possible the inventory increase was intentional.

The April PMI –– unlike the double-digit increases in new orders, production and employment registered in March ––showed increases in all its underlying variables, but most were on a small scale. New orders were up by just 0.5 of a point, to 52.3 points; production was up 0.5 of a point, to 52.3; and employment was up by 2.1 points, to 43.2.

Employment still remains weak, but has shown great improvement over the past few months. In December 2008, 68.2 percent of survey respondents reported lower employment, whereas only 22.7 percent reported lower employment for April. “While only 9.1 percent of respondents are hiring, the sharp drop in the percent of manufacturers laying off workers is encouraging,” 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.

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.

Commodity prices in April were up by 6.5 points, to 38.6, but remain low.

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 April 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, business and nursing. 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 21,500 from 142 countries.