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The Federal Reserve

2008 Annual Report pdf logo PDF version

Tough Times: The Southeastern Economy in 2008

Energy all over the map

Introduction
Employment
Real Estate
Banking and Consumer Spending
Energy, Tourism, and International Trade
Manufacturing and Agriculture
Little Good News
Economic Crisis Timeline
 
A Day in the Life

Photo of Jay RepineJay Repine
Supervision and Regulation Subject Matter Expert, Miami


The year 2008 was likely one of the most volatile ever in global energy markets. After scarce supply and ravenous demand especially in emerging market economies sent prices to record heights early in the year, by late in 2008 tight credit and the slowing economy sapped demand and prices.

Energy is, of course, important to the Southeast not just to fuel vehicles and heat, cool, and light homes and businesses. Three states in the region—Louisiana, Mississippi, and Alabama—combined with federal waters in the Gulf of Mexico, account for more than a third of the nation's oil production and almost half of U.S. refining capacity, according to the Energy Information Administration of the U.S. Department of Energy. The Henry Hub in Louisiana is the nation's largest natural gas trading center, while the Louisiana Offshore Oil Port is the only U.S. port that can accommodate the world's largest oil tankers.

Therefore, when global energy markets move, the Southeast feels it. And move they did in 2008. Energy costs crested in the summer as the price of light sweet crude oil topped $145 a barrel. That price sent the average U.S. price of regular gasoline to $4.11 a gallon in July, a record even in inflation-adjusted terms, and almost 40 percent higher than the summer 2007 average.

Even amid the gyrations in the energy markets, among the signature events of 2008 were two hurricanes that temporarily shut down much of the region's energy infrastructure. By some estimates, Hurricanes Gustav and Ike damaged oil production and refining as much as Katrina and Rita did in 2005 (chart 4).

Photo of the Mars oil platform
Southeastern states account for one-third of U.S. oil production, so when energy prices drop globally, the region feels the pinch. Pictured is the Mars platform (a joint venture of Shell Oil and BP), currently the largest producing oil platform in the Gulf of Mexico.

The 2008 storms closed many of the region's refineries for a couple of weeks, and even without damage, closed refineries can take several weeks to restart. In the wake of Ike and Gustav, the nation's refinery utilization rate dropped to its lowest level on record, 66.7 percent, meaning domestic refineries processed record-low amounts of crude oil. Hurricane-related outages wiped out some 14.5 million barrels of crude production in 2008, equal to about three days of total U.S. output, the EIA estimated.

Tourism held up regionally . . . mostly
Tourism was one of the few bright spots in the southeastern economy through much of 2008 before slipping late in the year. International travelers flocked to the region, while Americans traveled less because of high fuel prices, rising airfares, and recession.

Chart 4
Total U.S. Estimated Crude Oil Production
Chart 4: Total U.S. Estimated Crude Oil Production
Note: Data represent a four-week moving average.
Source: Oil and Gas Journal

A weaker dollar attracted vacationers from other countries in greater numbers through most of the year. International flights added seats in advance of the peak travel season in December, while domestic carriers pared capacity at some southeastern airports.

Especially in Florida, tourism was fueled by foreign visitors. In Miami-Dade County, international tourists accounted for nearly 45 percent of the market in the first half of 2008. International passenger traffic at the Miami International Airport for the year increased 3.9 percent even though it tapered off starting in September because of hurricanes and the financial crisis. Domestic passenger volume, meanwhile, declined 1.6 percent.

At the Orlando International Airport, international passenger volume for the year rose 17 percent even as domestic traffic fell 3.5 percent.

Strong early, travel took a hit late in the year. In November, the Orlando market's hotel occupancy rate plunged 15 percent from the same month in 2007, to 53 percent, the biggest one-month decline since November 2001. Although the rate rose slightly year over year in December, Orlando's hotel occupancy levels for 2008 were 3 percent lower than the year before. Room rates also fell nearly 9 percent in December from a year earlier, and revenue per room was off 3.8 percent.

In New Orleans, the all-important tourist business was generally good. Large crowds came for the city's signature events, including Mardi Gras and the Jazz and Heritage Festivals. The French Quarter Festival in April and the month-long Essence Music Festival in July set attendance records. Bugs, normally a nuisance, actually lured visitors to the Crescent City in 2008. The $25 million, 23,000-square-foot Audubon Insectarium opened in June, drawing more than 100,000 visitors in its first two months.

Photo of New Orleans
A bright spot in 2008, New Orleans tourism was generally good at events like Mardi Gras.

Traffic at New Orleans's Louis Armstrong International Airport for 2008 was up 5.5 percent from the year before. But as was the case in Florida's tourist centers of Orlando and Miami, New Orleans passenger traffic slowed in step with the economy in the fall but picked up slightly in December.

Just east of New Orleans, the Mississippi Gulf Coast's gaming industry suffered from post-hurricane closings in August and September, high gas prices, and the generally sluggish economy. Gross gaming revenues at the eleven coastal casinos declined 7.5 percent for the year, according to the Mississippi State Tax Commission.

International trade held firm
International trade has been a beacon in the economic clouds the past couple of years in the nation and the Southeast, helping to offset weaknesses elsewhere.

Chart 5
Growth of Southeastern International Port Shipments
Chart 5: Growth of Southeastern International Port Shipments
Source: U.S. Department of Commerce

The value of international shipments through the region's ports increased in 2008 from 2007, and several southeastern ports are expanding. Exports grew by 10 percent or more at every port in the region in 2008, according to the U.S. Department of Commerce (chart 5). Southeast exports jumped more than 23 percent, thanks primarily to heavy demand from Canada, Mexico, Brazil, Europe, and China.

Southeastern ports also imported 15 percent more year over year in 2008 in terms of value of shipments, mainly because of higher commodities prices. While import values rose, volume actually declined at the region's ports.

Growing trade with Asia and investments here by foreign manufacturers led ports such as those in Savannah and Jacksonville to upgrade container facilities. Savannah is the nation's fastest-growing container port, according to the American Association of Port Authorities. And Jacksonville's container capacity could triple by 2011, as Japanese and Korean shippers add terminals at the port.

Ports on the Gulf of Mexico are growing too. The Port of Mobile in Alabama is expanding container capacity to accommodate shipments to and from the $4.2 billion ThyssenKrupp steel processing plant that is scheduled to open near Mobile in 2010.