Industrial Activity - April 2009
Through March, reports from District manufacturing contacts were more optimistic than they had been since the onset of the downturn. Though weak demand, declining business investment, and tight credit continue to contribute to weak economic conditions, manufacturers reported multiple signs of improvement. Levels of production and shipments, as well as incoming new orders, increased sharply from February levels. The proportion of contacts reporting cutbacks in employment and/or work hours decreased from February to March. Prices for both raw materials and finished goods rose again, with some measures rising above year-earlier levels. The number of export orders received by manufacturers reversed its downward trend and increased for the first time since last June, according to our contacts. A helpful gauge of regional manufacturing, Kennesaw State University's Southeast Purchasing Managers Index (PMI), increased from 40.6 in February to 43.4 in March, the highest level since August 2008 but 10.9 points below March 2008. (A PMI over 50 indicates expanding manufacturing activity, below 50, contracting activity.) In summary, March showed tentative signs of stabilization and improvement, albeit from a dismal level of activity.
Trucking and Railway
The American Trucking Association's (ATA) National Truck Tonnage Index for February dropped 9.2 percent from a year earlier. Regional industry contacts reported that freight demand in early 2009 weakened for both trucking and rail companies. Trucking companies servicing the retail industry are particularly affected by weak container imports and sluggish domestic freight. According to recent Global Insight estimates, retail container imports for the first half of 2009 are expected to remain well below last year's level. Regional rail industry data through mid-April showed considerable weakness across all industry loadings compared to the same period last year. Double-digit declines were reported for shipments of autos, chemicals, and construction materials.
The value of international shipments passing through District ports slowed considerably in late 2008 and early 2009. For the 12-month period ending February 2009, the value of export shipments rose 15.4 percent while imports were up only 4.8 percent. Import values decelerated most in New Orleans, Tampa, and Savannah, reflecting slower inflows of key products such as steel and autos. Export values dropped most in New Orleans and Savannah in recent months, reversing the ports' double-digit growth in export values last year to Canada, Mexico, and China. Regional-based exports through fourth quarter 2008 slowed dramatically from earlier quarters. Export values declined only in Louisiana and Tennessee. Exports slowed most in Alabama, Florida, and Georgia but posted double-digit gains in Mississippi because of increased shipments to Mexico, China, and Russia.
The Energy Information Administration (EIA) reported a 36.7 million barrel (23 percent) increase in Gulf Coast crude inventories since the beginning of 2009, bringing stocks to the top of their average range for this time of year. Gulf Coast gasoline inventories have increased 34 percent since their September post-hurricane low as refineries continue to boost gasoline production, and gasoline demand remains below year-earlier levels.
Production and Refining
According to the EIA's short-term outlook, national crude oil production is expected to increase 9 percent in 2009, with two major production platforms in the Gulf of Mexico coming online. The region's year-to-date crude oil production has averaged 37,000 barrels, or 3 percent below the same period in 2008.
According to the Baker Hughes Rig Count, 46 rigs operated off the Gulf Coast during March, 12 rigs fewer than in March 2008. Gulf Coast refineries operated at 82 percent of their operable capacity in January, down from 85 percent the previous month.
Dismal vehicle sales have prompted most companies with regional assembly plants to drastically adjust production and employment. Recently, General Motors announced that it will extend summer shutdowns to 13 plants in North America, which include two regional assembly facilities (Spring Hill, Tenn., and Shreveport, La.). GM's move was expected since these plants have recently been operating at extremely low capacity. The short-term outlook for regional vehicle production is negative given the impact of tight credit on vehicle financing and sales and looming bankruptcy filings by Chrysler and GM.