Like many analysts, I read last Wednesday's purchasing managers index (PMI) report with a dropped jaw. Manufacturing is supposed to be one (if not the) sector leading the recovery, but for those who haven't heard, the Institute for Supply Management's (ISM) PMI dropped 6.9 index points to reach 53.5 in May. This level indicates a slower rate of growth than April's reading of 60.4 points. Similar drops happened to slightly lesser degrees last month in the United Kingdom, the euro zone, and China. All of these PMIs are still above the 50-point benchmark indicating growth, so it's not quite time to sound the alarms just yet, but the U.S. PMI fell particularly hard from April to May. A one-month 6.9 point drop hasn't been seen since January 1984. Data for June, to be released on July 1 for the U.S. PMI and the other economies mentioned above, will help us see if this decline was a temporary phenomenon brought on by global supply chain disruptions resulting from the disaster in Japan, or if it indicates other headwinds the recovery is facing.
Silver linings in last week's report include:
- 84 percent of contacts said their levels of new orders were better or the same as last month. Only 16 percent said their level of new orders had dropped from April to May. The new orders component of the PMI is the most forward-looking.
- Though it dropped 4.5 index points from April to May, the employment component remained at 58.2 for May. It was the highest reading of any component used to calculate the PMI.
- Produced from the same ISM survey but not included in the PMI's calculation, the prices index dropped 9 index points in May. This reading indicates that while manufacturers are still feeling rising price pressures for their inputs, their prices aren't rising as quickly as they were in April.
Back in the Sixth District...
Not surprisingly, the Southeast PMI, produced in conjunction with our friends at Kennesaw State's Econometric Center, also took a hit in May. However, it wasn't hit as hard as the national PMI. For the Atlanta Fed's Sixth District states (Georgia, Florida, Alabama, Tennessee, Mississippi, and Louisiana), the PMI fell 4.6 index points from April to reach 60.2 in May, a notably higher level than the national PMI. Here's a snapshot of how the Southeast PMI's components fared against the national PMI for May:
Why the difference?
Now and then, I get information from LexisNexis that includes a link to every story that focuses on manufacturing in the Sixth District. Of course, manufacturers in the Southeast face similar problems as manufacturers in other parts of the country (rising commodity prices have been a frequently mentioned problem recently), but here are a few regional headlines from May and early June that might explain why the Southeast PMI fared a bit better than the national one for May:
BBVA Compass: Manufacturing and exports to drive economy in 2011 (Birmingham Business Journal)
VF Jeanswear facility reopening in Holly Pond (Birmingham Business Journal)
Boeing avoids 70 planned job cuts in Macon this year (Macon Telegraph)
Yamaha boosting production in Newnan (Atlanta Business Chronicle)
Kia will expand its Ga. Plant (Autonews.com)
Nutriforce to build $5M plant (The South Florida Business Journal)
Firms increase local manufacturing capacity, add space and jobs (Orlando Business Journal)
Biovest builds cancer vaccine manufacturing site (Tampa Bay Business Journal)
Better days ahead for auto industry (Nashville Business Journal)
Chattanooga assembly plant is VW's prototype for the future (Autonews.com)
Carlisle Transportation locates in Franklin (Knoxville News-Sentinel)
More information about the Southeast PMI, including the exact wording of questions posed to participants, is available. Also, if you're a manufacturer in the Southeast, you can easily find the link on that page to sign up for the KSU-FRBA five-minute monthly survey, which entitles you to a full regional report as well as your state's report before its release to the press each month.
By Mark Carter, an analyst in the Atlanta Fed's research department