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Southeastern Manufacturing Survey

Embargoed until 10 a.m. Jan. 14, 1997

SOUTHEASTERN MANUFACTURING IN DECEMBER:
CURRENT ACTIVITY DOWN; OUTLOOK RISES

According to the monthly survey conducted by the Federal Reserve Bank of Atlanta, the proportion of southeastern manufacturers reporting gains in production declined slightly in December after a moderate rise in November. Weakness was spread across most current activity indicators, but the indexes for inventories declined. Current price indexes weakened or remained low. Suggesting that current weakness in activity is temporary, most outlook indicators were improved and at moderate levels. Outlook indexes for prices rose -- but from low levels.

In December the proportion of survey respondents reporting increased production moved to 31 percent, compared with 33 percent in November. However, the share of respondents reporting a decline in production jumped to 32 percent from 25 percent in November. As a result, the diffusion index for production dropped to zero in December from 8 in November. Weakness in other current activity indicators was most noticeable for new orders, backlogs and the average employee workweek. The index for new orders fell to minus 11 from plus 6 in November.

There are indications that current weakness is temporary. The shipments index rebounded to 3 from mildly negative numbers in October and November. In turn, inventory reports weakened. The materials inventories index fell 5 percentage points to minus 10 -- the lowest level since September 1993. The finished goods inventories index edged down 3 percentage points to minus 2 in December. With the reports of lower output, the labor input adjustment mainly came through the workweek. The average workweek index dropped from a minus 3 in November to a minus 13 in December. However, the number of employees index actually rose but remained near zero where it has been for the last five months.

On the inflation front, the index for prices received dropped to minus 16 in December from minus 8 in Novemer. This index is at its lowest since January 1992, when the series low of minus 19 was set. Only 5 percent of respondents reported a prices received increase for December. The prices paid diffusion index rose but remained soft -- going to 8 in December from 2 in November.

Respondents continue to be moderately optimistic about an expected rebound in activity. The production outlook rose to 43 in December from 39 the month before. Rising more noticeably were indexes for new orders, backlogs and the average employee workweek. The outlook index for the number of employees remained modestly positive, rising to 10 from 7 in November. Price outlook indexes continued to rise in December, coming off series lows in the late summer and early fall. The expected materials prices index increased to 34 in December from 29 the month before. The index for expected finished goods prices jumped to 20 in December from 8 in November. October's figure, however, was a series low.

December's report overall indicates sluggishness in December for manufacturers in the Southeast. However, inventories appear to be lean, plant work forces are stable, and respondents are moderately optimistic about prospects for output in coming months. Outlook price indexes have picked up recently but largely appear to reflect coming off weak levels in previous months.

NOTE: The Atlanta Fed's survey covers the Sixth Federal Reserve District, which includes Alabama, Florida and Georgia and portions of Louisiana, Mississippi and Tennessee. The plants surveyed represent a cross-section of industries in the region. For background on the Survey of Southeastern Manufacturing Conditions, see the article by R. Mark Rogers, "Tracking Manufacturing: The Survey of Southeastern Manufacturing Conditions," in the September/October 1992 issue of the Federal Reserve Bank of Atlanta's Economic Review. For reprints and historical data, see http://www.frbatlanta.org on the World-Wide Web or visit the U.S. Commerce Department's Economic Bulletin Board.

Summary of Southeastern Manufacturing Conditions: December 1996