Purchasing Managers Index drops to lowest level since January 2009, but Employment Index remains strong

The Wayne State University School of Business Administration and Institute for Supply Management – Southeast Michigan report that the Southeast Michigan Purchasing Managers Index (PMI) dipped to 47.6 in December. It’s the first time the PMI has fallen below 50 in 22 months. Generally, PMI index values above 50 suggest an expanding economy, while index values below 50 indicate a contracting economy.

The three-month moving average PMI index value, however, is still above 50 at 52.9. “It remains to be seen if this is a temporary dip in local economic activity,” said Timothy Butler, associate professor of supply chain management at Wayne State’s business school. “We will be concerned about the stability of metro Detroit’s economy if this trend continues over the next several months, but it’s too soon to say.”

The specific components contributing to the declining PMI were the Production Index, which was below 50 for the second consecutive month, at 44.2; Finished Goods Inventory, which was 42.3; and the New Orders Index, at 46.2. New Orders fell for the second consecutive month, falling below 50 for the first time since September.

“On the positive side, the Employment Index value is a strong 58.3, which is slightly up from the November value. This coincides with reports that the Michigan jobs outlook is improving,” Butler said. “Similarly, the Commodity Prices Index value is 50, which is down for the second consecutive month, indicating that inflationary pressures may be subsiding.”

The number of respondents who expect the economy will be less stable or more stable both declined, apparently moving toward the middle, as the percentage of purchasing managers who anticipate that the economy will remain stable over the next six months increased from 52 percent in November to 64 percent in December.

“We receive anecdotal data from our participants each month, and this month Southeast Michigan purchasing managers reported concerns over a variety of issues domestically and internationally; such as the European financial crisis, the North Korean leadership change, Medicare payments, and the soft housing market,” said Kenneth Doherty, assistant vice president for procurement and strategic sourcing at Wayne State University. “They also reported continued delay in technology shipments due to the Asian tsunami.”

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