The Southeast purchasing managers index (PMI) report was released on March 5, and it indicates that any lingering effects from the late 2014 manufacturing slowdown have abated. If you recall, the December Southeast PMI dipped into contraction territory, but it has rebounded nicely since. The PMI index has risen 14.9 points since December and now sits at its highest reading since April 2014.
The Atlanta Fed's research department uses the Southeast PMI to track southeastern manufacturing activity. The Econometric Center at Kennesaw State University produces the survey, which provides an analysis of current 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 contracting activity.
The Southeast PMI's overall index rose 4.9 points to 60.5 in February (see the chart). The subindexes also suggest some positive future developments:
- The new orders subindex rose to 63.4, a 6.0 point increase over January and a 29.4 point increase over the last two months.
- The production subindex increased 3.5 points over the previous month and now reads 64.6.
- The employment subindex rose 7.8 points over January to 67.1, indicating that manufacturing payrolls grew for the 17th consecutive month.
- The supply deliveries subindex increased 1.8 points from the previous month to 53.7.
- The finished inventory subindex increased 5.5 points compared with January.
- The commodity prices subindex fell 1.7 points and now reads 35.4.
Optimism for future production fell in February. When asked for their production expectations during the next three to six months, 46 percent of survey participants expected production to be higher going forward, compared with 61 percent in January. The good news is that no survey respondents expect production to be lower than their current levels during the same time period.
The change in energy prices and severe winter weather are just a couple of challenges manufacturing faces. Some isolated reports of reduced orders from manufacturers closely tied to the energy sector have emerged, but on the other hand, the drop in oil prices has other contacts saving money on fuel costs. However, most contacts in the Southeast have expressed little direct energy-related effect on their business activity. Judging by the February PMI report, southeastern manufacturing is holding strong. We'll see if the positive momentum sustains into spring.