Georgia key economic indicator slips for second consecutive month

Manufacturing index‚ down 3.7 points‚ continues decline after four months of gains‚ says KSU economics professor

Kennesaw State University

Manufacturing activity in Georgia continued to slip in June as manufacturers reported a huge decline in 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 June was 44.3‚ down 3.7 points from May. At under 50‚ the reading illustrates that manufacturing continues to contract‚ though at a slower rate than in the fourth quarter of 2008. The PMI is up 17.5 points for the year.

“Companies are very hesitant to hire because it’s not clear where the markets and the economy are going‚” said Don Sabbarese‚ professor of economics and director of the Econometric Center at the Coles College of Business. “There’s still a lot of weakness and uncertainty. Manufacturers are not comfortable predicting very far into the future what sales will be like.”

Employment continues to be very weak‚ with none of the manufacturers surveyed doing any hiring in June‚ Sabbarese said. Weakness in new orders is making manufacturers hesitant to hire.

Highlights of the June PMI include:
• Employment was down by 9 points‚ to 31‚ the lowest level since February;
• New orders were flat at 45.2‚ up by 0.2 points‚ for total of 7.1 points down for the past two months;
• Production was down by 2.3 points‚ to 45.2‚ for a total of 7.1 points down for the past two months;
• Declines in new orders and production are closely tied‚ suggesting that manufacturers are making short−term adjustments instead of focused on long−term planning.
• Commodity prices continued to rise‚ gaining 2. 6 points in June‚ to 47.6

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 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 June PMI‚ or to speak with professor Sabbarese‚ please call (770) 423−6094.