If you're a fan of auto racing, you're probably familiar with drivers trying to conserve gas. One mental trick they use when in conservation mode is to accelerate like there is an egg between their foot and the gas pedal. This technique prevents the driver from wasting fuel by accelerating too fast, or too slow. Manufacturing in the Southeast had been easing off the gas pedal the last couple of months, but according to the latest Southeast purchasing managers index (PMI), manufacturing activity recently refueled, and the egg has been tossed out the window. The Southeast PMI, while still expanding, had seen decreases in the overall index during May, June, and July. The August report, released on September 5, indicated that activity reversed course and is now accelerating.

The Atlanta Fed's research department uses the Southeast PMI to track manufacturing activity in the region. The Econometric Center at Kennesaw State University produces the survey, which analyzes current market conditions for the manufacturing sector in Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. The PMI is based on a survey of representatives from manufacturing companies in those states and analyzes trends concerning new orders, production, employment, supplier delivery times, and inventory levels. A reading above 50 indicates that manufacturing activity is expanding, and a reading below 50 indicates that activity is contracting.

The Southeast PMI increased to 56.7 points in August, a 5.4 point increase over July (see the chart). The PMI report saw significant gains in a few of the underlying variables:

  • New orders: The new orders subindex increased 11.2 points during July and is now back in expansionary territory. The significant gain in August went a long way in reversing the 14.1 point decline in July.
  • Production: The production subindex also rebounded into expansionary level; increasing 12.1 points from July to August.
  • Employment: The employment subindex fell 3.9 points compared with the previous month. However, employment remained in expansionary territory for the 11th consecutive month, indicating that manufacturers continue to increase payrolls.
  • Supply deliveries: The supplier deliveries subindex fell 1.0 point during August, suggesting that manufacturers are receiving their inputs slightly quicker.
  • Finished inventory: The finished inventories subindex rose 8.4 points compared with July, suggesting that inventory levels are slightly higher than ideal for manufacturers.
  • Commodity prices: Input price pressures changed only slightly, increasing 0.8 points in August to 58.3. The commodity price subindex continues to suggest moderate price pressures in the manufacturing sector.

Southeast_purchasing

When asked for their production expectations during the next three to six months, 44 percent of survey participants expect production to be higher, up from 40 percent in July. Optimism among manufacturing contacts has increased the last couple of months, after falling to 34 percent in June.

It's encouraging to see a pick-up in southeastern manufacturing activity. The national PMI (produced by the Institute for Supply Management) reached 59.0 points in August, its highest level in more than three years. (I should note that the Southeast PMI is not a subset of the national index.) Hopefully, activity in the Southeast can follow suit and continue to rise. It's also good that we got the egg removed from the car. They belong on the breakfast table (scrambled for me, not fried), not on the accelerator.

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