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Southeastern Manufacturing Survey

Embargoed until 10 a.m. Nov. 13, 1996**

SOUTHEASTERN MANUFACTURING IN OCTOBER:
PRODUCTION WEAKENS; OUTLOOK SAYS IT'S TEMPORARY

According to the monthly survey conducted by the Federal Reserve Bank of Atlanta, the proportion of southeastern manufacturers reporting gains in production dropped sharply in October after a moderate rise in September. Diffusion indexes for production and shipments fell after improving three months in a row. New orders and backlogs also declined. However, the current employment index was less negative at the same time the workweek index weakened. Current price indexes declined in the latest month. In contrast, most outlook indicators were up noticeably in October.

In October the proportion of survey respondents reporting increased production fell to 25 percent from 38 percent the month before. The share of respondents reporting a decline in production edged up to 22 percent from 19 percent in September. As a result, the diffusion index for production dropped to 3 in October from 19 in September. Indexes for shipments and new orders weakened similarly. The new orders index turned negative for the first time in seven months.

The number of employees index improved slightly to zero in October from minus 4 in September. The average workweek index slipped from 2 in September to minus 1 in October -- the first negative reading in seven months.

Current price indexes declined -- especially for prices received. The diffusion index for prices received dropped to minus 12 from minus 3 in September. The prices paid diffusion index edged down to 3 in October from 6 the month before.

Despite weakness in current activity, respondents were more optimistic about an expected rebound in activity. The production index rose noticeably from 27 in September to 34 in October. Expected backlogs returned to the positive range, rising from minus 1 to plus 4. Expected employment and average workweek indexes improved but remained moderately negative. Price outlook indexes weakened in October. The index for expected finished goods prices dropped noticeably to a new series low -- from 9 in September to zero in October. October's number, in fact, was marginally negative -- a series first. The expected materials prices index slipped but remained above the series low.

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: October 1996