Manufacturing starts 2016 with lackluster numbers

Dr. Donald Sabbarese

KENNESAW, Ga. (Feb 2, 2016) — Georgia manufacturing got off to a sluggish start for 2016, according to the Purchasing Managers Index released on Feb. 1 by Kennesaw State University’s Econometric Center in the Michael J. Coles College of Business.

January’s PMI of 52 reflects decreases in four of five categories measured, and demonstrates Georgia manufacturing is struggling with weaker market conditions. January saw a 0.5 drop from December’s reading of 52.5, which concealed much broader weakness because of a 16 point increase for finished inventory. New Orders, production, employment and supplier delivery time all decreased in January. Employment’s seven-point decrease to 48 was its first reading below 50 in the last five months.

“Georgia’s PMI dropped 0.5 of a point to 52, but still remains 1.8 points higher than the National PMI’s reading of 48.2,” said Don Sabbarese, director emeritus of the Econometric Center and professor of economics at KSU. “The National PMI reading indicates manufacturing contracting for the fourth consecutive month. Employment’s reading of 45.9 is its second consecutive month below 50.”

According to Sabbarese, Georgia’s PMI remains positive, above 50, as new orders and production struggle with readings of 50 and 52. Employment’s seven-point drop is a concern as no respondents reported higher employment for the month of January.

Finished inventory’s 16-point increase was the result of 48 percent of respondents reporting higher inventory. When new orders and production decrease simultaneously with increasing inventories, it suggests the increase was not intentional, but a result of weaker than expected growth. Even though inventories sharp increase offset decreases for the other components, the increase is a byproduct of weaker manufacturing growth. 

Summary of highlights from the January PMI:

New orders were down 0.5 points to 52, which was 0.7 points above its six-month average.
Production was down 2.5 points to 50, which was 1.3 points below its six-month average.
Employment was down 7 points to 48 points, which was 4.1 points below its six-month average.
Supplier delivery was down 8.5 points to 44, which was 7.4 points below its six-month average.
Finished inventory was up 16 points to 66 points, which was 14.4 points above its six-month average.
Commodity prices were down 0.5 points to 32, which was 3.3 points below its six-month average.
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.

-Marietta Daily Journal