Southeast manufacturing sees double-digit drop in May, reverses previous gains

Donald Sabbarese

KENNESAW, Ga. (Jun 8, 2016) — Southeast manufacturers reversed a strong April report with sharp decreases, according to the Southeast’s Purchasing Managers Index (PMI) report released today by Kennesaw State University’s Econometric Center in the Michael J. Coles College of Business.

Southeast manufacturing activity decreased 12.3 points to 48.8 in May, based on decreases for all five of its underlying components. This is the lowest Southeast reading since August 2015.

The current levels of new orders, production, employment and finished inventory registered well below their six-month averages. This sharp swing for the PMI is probably overstating weakness in manufacturing given the National May PMI reading of 51.3, according to Don Sabbarese, director emeritus of the Econometric Center and professor of economics at Kennesaw State University.

May’s reading more than offset gains made over the past four months. The new order decrease was driven by 16 percent less respondents reporting higher new orders. Production’s decrease was based on 20 percent less respondents reporting higher production. Future expectation for production also took a hit, with 33 percent of respondents expecting higher production in the next three to six months, down from 46 percent in April.

Employment fell by 8.7 points based on 6 percent less manufacturers reporting higher employment for a total of 21 percent. Supplier delivery time decreased 3.3 percent and finished inventory decreased 8.1 percent.

The National PMI increased 0.5 point to 51.3. National new orders, production and finished inventory decreased 0.1, 1.6, 0.5, respectively, but were offset by a 5 point increase for supplier delivery time.

Six Southeastern states — Alabama, Florida, Georgia, Louisiana, Mississippi and Tennessee — are included in the Econometric Center’s monthly regional report. Four of the six experienced higher PMI readings.

Highlights of the May Southeast PMI include:

  • New orders decreased 19.7 points to 46.5, 12.1points below its six-month average
  • Production decreased 21.2 points to 47.7, 12.3 points below its six-month average
  • Employment decreased 8.7 points to 53.5, 2.7 points below its six-month average  
  • Supplier delivery time decreased 3.5 points to 54.7, 2.2 points above its six-month average
  • Finished inventory decreased 8.1points to 41.9 points, 11.1 points below its six-month average
  • Commodity prices decreased 0.3 points to 60.5 points, 13.4 points above its six-month average

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The Southeast 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.

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For more information on the Southeast PMI or to talk with Sabbarese, call 470-578-6094. 

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