In a January SouthPoint post, I suggested that winter posed problems for manufacturing last year, and after the release of December's lackluster Southeast Purchasing Managers Index (PMI) report, it appeared that 2015 might get off to a slow start as well. Then the really disconcerting news hit: America's favorite groundhog saw its shadow on February 2, predicting six more weeks of winter. Would this event affect southeastern manufacturing going forward? According to the January Southeast PMI report, released on February 6, the answer was a resounding no!
The Atlanta Fed's research department uses the Southeast PMI to track manufacturing activity in the Southeast. 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 contracting in December for the first and only time in 2014, the Southeast PMI bounced back with vigor in January (see the chart). The overall reading rose 10.0 points over December to 55.6 and saw a healthy rise in most subindexes.
- The new orders subindex rebounded 23.4 points over December, seeing the subindex increase to a solid 57.4 reading.
- The production subindex also saw a significant gain over last month, rising 21.1 points to a 61.1 reading.
- The employment subindex rose 5.3 points over December and remained in expansionary territory for the 16th consecutive month, suggesting that manufacturing payrolls continue to grow.
- The supplier deliveries subindex increased 1.9 points from the previous month to 51.9.
- The finished inventory subindex fell 1.9 points compared with December. The 48.1 reading suggests that inventories may be slightly below optimal levels, and production could ramp up in the near term as a result.
- The commodity prices subindex continued its slide, falling another 5.0 points compared to last month.
Optimism was at healthy levels in January as well. When asked for their production expectations during the next three to six months, 61 percent of survey participants expected production to be higher going forward.
The January report was a nice reversal from the December data and provides a strong start to 2015. Hopefully, the momentum will carry over to the entire year. Although we love Punxsutawney Phil as much as anyone, we hope his weather forecast doesn't hamper manufacturing activity. So far in 2015, there are no shadows in the Southeast.
By Troy Balthrop, a senior Regional Economic Information Network analyst in the Atlanta Fed's Nashville Branch