Georgia manufacturing activity improved 9.8 points to 55 in January, the first time the monthly index has shown positive movement since September 2012. This surge is due primarily to the strength of sharp increases for new orders and production, according to the Purchasing Managers Index (PMI) released today by Kennesaw State University’s Econometric Center at the Michael J. Coles College of Business. 

This month’s index is the strongest it has been since June 2012 when it also registered 55 points.

“The size of the increase in manufacturing activity for January was somewhat of a surprise, but there is no way to measure how the resolution of the pending sequestration and higher taxes previously delayed business decisions,” said Sabbarese. “But perhaps the best explanation for such a strong uptick is the recent compromise surrounding the fiscal cliff.”

The January index also recorded a 4.9 point increase over its six-month average of 50 points.

“The renewed strength in new orders for January is much needed, however, it remains to be seen if this is a sustainable trend or a one month aberration,” said Sabbarese. “The true test will be we can sustain these levels throughout the 1^st quarter.”

Highlights from the January PMI include:

• New orders up 21.6 points, to 59.6
• Production up 19.8 points, to 55.8
• Employment up 1.9 points, to 51.9
• Supplier delivery up 5.8 points, to 55.8
• Finished inventory down 0.1 of a point, to 51.9
• Commodity prices were up 9.4 points, to 65.4

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.