Since July 2009, Kennesaw State University's Southeastern Purchasing Managers Index (PMI) has diverged from its national counterpart produced by the Institute for Supply Management. By January 2010, this difference widened from about a 6-point gap to a more than 12-point gap.
Survey methods
Part of the gap may be the result of surveying methods used in calculating the Southeast PMI. Kennesaw State has been producing a Georgia PMI since 1991 while the regional measure has only existed for three and a half years (it began in fall 2006). As a result, there are more Georgia responses in the regional survey than responses from other states. Another reason the regional PMI lags could be that Georgia respondents are geared heavily toward construction-related manufacturing, which in the face of a housing downturn has dragged the index significantly. Recently, the Atlanta Fed has partnered with Kennesaw State to increase the level of participation outside of Georgia, thereby more accurately representing each District state and improving the reliability of the index.
Export boost
Another possible explanation for the indexes' divergence is that national respondents might respond to PMI survey questions based on the performance of their entire corporation, including their international business. Regional respondents for the Southeast PMI may be smaller firms that might not be engaged in exporting, answering the survey based on their firm's local performance. During the past year, the dollar's 6 percent decline has increased demand for U.S. goods from abroad, and the national PMI seems to better capture the high value of exports during this recovery.
Comparison of regional and national PMI components
As of January 2010, several factors seem to affect the Southeast PMI—production, employment, and finished inventory levels. Though production saw a 2.3 index point gain in January, it still fell below the 50-point benchmark indicative of growth in the index. This movement contrasts sharply with the national PMI production figure, which recently surged to 66.2 and has been above the 50-point benchmark since June 2009. The Southeastern employment index hasn't seen two consecutive months above 50 since the summer of 2007 (prerecession), whereas the national employment reading has averaged above 50 for the past four months. Falling inventory levels have become the norm during this recession, nationally and regionally. However, the region's manufacturing inventory index suggests that inventory cutbacks are still under way in the Southeast whereas they've begun to slow nationally. January's reading of 32.7, a result of a decline of 8.4 index points, flirts with a historic low for the series reached in December 2008. In January the national PMI's inventory level was 46.5, still indicating a contraction, but the result of a 3.5 percentage point gain for the month.
New orders lift Southeast PMI in January
Perhaps the silver lining for the Southeast PMI is January's new orders reading of 54.3, a substantial 8.5 percentage point gain for the month. This gain was the result of 40 percent of the respondents reporting higher new orders in January relative to December. Though still below the national new orders figure, which is currently at 65.9, January's Southeast PMI new orders figure easily clears the 50-point benchmark indicative of growth. The new orders component is traditionally viewed as the most effective precursor when evaluating the future health of the manufacturing sector. So perhaps this is a sign that the Southeast PMI is beginning to catch up to the national indicator.
More information is available on how the Southeast PMI is calculated. Those interested can review the Southeast PMI survey process, see a sample survey complete with questions survey respondents, or sign up for the survey.
A special thanks to members of the Kennesaw State University Econometric Center, who contributed to this blog posting.
By Mark Carter, a research analyst in the Atlanta Fed's research department