While in high school, I really enjoyed studying Shakespearean literature. Not because I liked the plays so much, but because I enjoyed trying to speak Shakespearean. It became a go-to move when I was trying to aggravate my mother. "Mom, would thee please passeth the potatoes ere I starve to death?" My mother would look at me with complete exhaustion but would always pass the potatoes.
While mulling over the data from the December Southeast purchasing managers index (PMI) report released on January 5, I was reminded of last winter and a Shakespeare quotation. A partial line from his play As You Like It read, “Here shall he see no enemy but winter and rough weather” (act 2, scene 5). If you remember, last winter’s weather caused problems for manufacturing activity across much of the country. According to the Southeast PMI, December had been a lackluster month for regional manufacturing activity for several years, and 2014 was no different.
The Atlanta Fed’s research department uses the Southeast PMI to track regional manufacturing activity. The Econometric Center at Kennesaw State University produces the survey. It provides an analysis of 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.
After indicating expansion every month this year, the overall PMI fell below the 50 threshold for expansion in December (see the chart). All underlying variables in the December PMI report fell except for finished inventories. In some cases the decreases were significant. The PMI decreased to 45.6, which was a 12.7 point drop compared with November.
- The new orders subindex fell below the 50-point threshold for expansion for the first time since January, decreasing 27.0 points compared with the previous month.
- The production subindex fell 19.8 points compared with November, also falling below the 50-point threshold for expansion.
- The employment subindex fell 10.6 points from November but remained in expansionary territory for the fifteenth consecutive month.
- The supply deliveries subindex decreased 7.3 points from the previous month to 50.0, which represents no change in activity.
- The finished inventory subindex inched up 1.2 points compared with November and now also reads 50.0.
- The commodity prices subindex fell to 42.0, a 10.4 point decrease compared with November.
However, optimism rose in December versus November. When asked for their production expectations during the next three to six months, 66 percent of survey participants expected production to be higher going forward.
Is it just coincidence that winter began and manufacturing activity slowed? One could point to several other factors for the decrease. Maybe the strong dollar is reducing manufacturing exports, or maybe the fall in oil prices is affecting production activity. It’s still too early to know for sure. Based on optimism for future production, let’s hope it was just a one-month anomaly. The Atlanta Fed will be watching—or in my best Shakespeare, "we shalt be watching."
By Troy Balthrop, a senior Regional Economic Information Network analyst in the Atlanta Fed's Nashville Branch