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The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.

The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.

Postings are weekly.

Regional Manufacturing Ends 2013 with a Whimper, but Optimism Is Rising

Although manufacturing in the Southeast was in expansion territory for 10 of the first 11 months of 2013, the sector closed out the year in unspectacular fashion. The December Southeast Purchasing Managers Index (PMI) report was released on January 6, and the final reading for 2013 was 48.4 points, which is a 3.8-point drop from November, a disappointing finish to what was a good year. However, the average PMI for 2013 was a not-so-bad 52.0, and optimism among purchasing agents climbed for the second consecutive month.

The Southeast PMI is produced by the Econometric Center at Kennesaw State University and provides an analysis of current conditions for the manufacturing sector in Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. The survey is based on responses from purchasing agents from manufacturing companies in those states. The survey measures activity in new orders, production, employment, supplier delivery time, and finished inventories. A reading on this index above 50 represents an expansion in the manufacturing sector, and a reading below 50 indicates a contraction.

The 3.8 point drop in December can be attributed almost entirely to weakness for new orders and production. Both indexes fell 12.2 points compared with November and were at their lowest readings for all of 2013. Interestingly, both indexes experienced similar contractions in July 2013, only to rebound the following month into expansion territory. The employment index held firm at 52, which generally indicates manufacturing payrolls increased during the month. The supplier delivery times index increased 2 points, meaning that purchasing agents are waiting longer to get materials from their suppliers. Slower delivery times are generally interpreted as a sign that suppliers are experiencing strong demand for their products. The finished inventories index was up 3.1 points over November. The index remained below 50 for the eighth consecutive month, suggesting that customer inventories are low or close to desired levels (see the chart).

Southeast Purchasing Managers Index

At the state level, only Georgia and Florida closed out the year in expansion territory. Florida was particularly strong, registering 58.1 points in December. Alabama, Louisiana, Mississippi, and Tennessee all ended the year below the 50-point threshold.

A very encouraging aspect of the December report was the optimism level of survey respondents. When asked for their production expectations for the next three to six months, 53 percent expect production to be higher, the highest level of optimism since January 2013.

Based on input from the Atlanta Fed’s contacts in manufacturing and on trends in national data, it appears unlikely that December’s fall in regional new orders and production is the beginning of a trend. In addition, with the employment index expanding and the level of optimism for future production rising, conditions appear favorable that the Southeast PMI will rebound in January. In the meantime, singing a stanza of “Auld Lang Syne” to bid farewell to 2013 might be in order. Or if you’re like me, just sing the first line (because that’s all you know) and mumble the rest. Here’s wishing everyone a happy new year!

By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed’s Nashville Branch