Manufacturing activity in Georgia fell sharply to 46.4, down 5.3 points from last month due to the aftermath of Hurricane Sandy and the continued uncertainty surrounding the federal government’s handling of the fiscal cliff, according to Don Sabbarese, professor of economics and director of Kennesaw State University’s Econometric Center at the Michael J. Coles College of Business.

“The size of the decrease in Georgia’s manufacturing activity was somewhat of a surprise,” Sabbarese noted in the November Purchasing Managers Index (PMI), released today. “Manufacturing was expected to decrease based on business disruption from the northeast hurricane, but the magnitude of the decrease was substantial. [Also] the uncertainty regarding the fiscal crisis is raising its ugly head.”

According to the report, four indicators — new orders, production, employment and finished inventory — recorded substantial decreases, while supply deliveries was the only bright spot in November.

“November’s PMI decrease is currently following a pattern of weakness,” said Sabbarese. “It is difficult to separate the effects of Hurricane Sandy’s economic disruption and the uncertainty of Washington’s handling of the pending fiscal cliff. If Washington can avoid the expiration of the Bush tax cuts and sequestration, then manufacturer’s long-run planning will become easier and less disruptive.”

Highlights from the November PMI include:

• New orders down 4.5 points, to 45.5
• Production down 11.2 points, to 43.2
• Employment down 2.3 points, to 47.7
• Supplier delivery up 2.4 points, to 54.5
• Finished inventory down 11.3 points, to 40.9
• Commodity prices were up 2.3 points, to 52.3

The Georgia PMI provides a snapshot of manufacturing activity in the state, just as the monthly PMI released by the Institute for Supply Management provides a picture of national manufacturing activity. A PMI reading above 50 indicates that manufacturing activity is expanding; a reading below 50 indicates it is contracting.

The Georgia PMI reading is a composite of five variables — new orders, production, employment, supply deliveries and finished inventory. A sixth variable, commodity prices, is compiled by the Coles College’s Econometric Center but does not go into the PMI calculation.

The PMI, compiled from a monthly survey of manufacturers, is the earliest indicator of market conditions in the sector. Since manufacturing, which accounts for 11 percent of GDP, is sensitive to changes in the economy, it can also reveal changing macroeconomic trends. 

The PMI’s value is in its timeliness and sensitivity to variables such as interest rates, global markets and other economic changes. The Georgia PMI provides valuable data used by institutions such as the Federal Reserve Bank of Atlanta to assist in its analysis of current economic conditions, along with many other data sources, to get a picture of economic activity.