Industrial Activity - August 2008
An increasing share of industrial contacts reported that production and volume of shipments were down in July 2008 from year-earlier levels. Many contacts continued to report cutbacks in employment or work hours, and nearly all reported paying higher prices for raw materials. Two-fifths of contacts noted high and steady export orders. Kennesaw State University's Southeast Purchasing Managers Index (PMI) for July 2008 declined to 50.7, down from 52.3 in June, and 5.6 points below July 2007 levels. (A PMI over 50 indicates expanding manufacturing activity, below 50, contracting activity).
Trucking and Railway
The American Trucking Association's national truck tonnage index for June was up 1.3 percent from May levels and 5.1 percent higher than a year earlier. Regional industry contacts reported modest increases in trucking activity. Freight demand for regional rail companies continues to be weaker than last year. Overall carload readings through mid-August were down from year-earlier levels. Shipments of automotive and construction materials continued to drop, offsetting some gains in coal, minerals, and farm product shipments. Intermodal shipments were lower than year-earlier levels. Overall, rising fuel prices and soft freight demand continue to trouble the industry's outlook.
The value of international shipments passing through District ports continues to exceed 2007 levels. For the 12-month period ending in June, exports rose 26 percent, with all District ports posting double-digit gains. This increase has reportedly created logistical problems for some regional ports because of the shortages of vessel capacity and containers. For the same period, the value of regional imports rose 12.7 percent, mostly driven by higher import prices. Through June 2008, while import values across regional ports were still rising, import volumes declined from year-earlier levels. Exports to Canada and Mexico, the top-ranked and third-ranked regional markets, increased 7 percent and 4 percent, respectively. Regional exports to Brazil, the United Kingdom, Germany, and China climbed sharply as well.
The Energy Information Administration (EIA) reported a 10.8 million barrel rise in Gulf Coast crude oil inventories the second week of August, marking the largest weekly increase since October 2002. Oil inventories are now in the middle of their five-year-average range. After hovering well above their average range for the first half of the year, motor gasoline inventories in the Gulf Coast have fallen 12 percent since the end of June. Gulf Coast gasoline inventories are now below year-earlier levels for the first time since February.
Production and Refining
According to the EIA's short-term outlook, national crude oil production will remain largely unchanged in 2008 relative to 2007, with output growth in the Gulf Coast compensating for declines in other parts of the nation. The region's crude oil production year-to-date has averaged 34,000 barrels, or 2 percent, below the same period last year, mostly because of large declines in January and February. According to the Baker Hughes Rig Count, roughly 66 rigs operated in the Gulf Coast during the first three weeks of August, seven rigs fewer than in August 2007. Gulf Coast refineries operated at 89 percent of their operable capacity in April, up from 87 percent a month earlier.
Through early August, vehicle production in District states was much weaker than earlier reported. Only the Mercedes plant in Alabama reported higher production levels when compared to the same period in 2007. About four-fifths of the vehicles assembled in the region are truck or SUVs—the vehicle segments most affected by rising fuel prices and shifting consumer demand. The short-term outlook for regional vehicle production is uncertain given a sluggish economy and the final closing of GM's Doraville, Ga., facility in September. Other plants have recently announced output reductions of slow-selling trucks and SUVs to work off high inventory levels.
The District's longer-term auto production outlook was brightened by Volkswagen's selection of Chattanooga, Tenn., as the site for a $1 billion auto factory. The plant will assemble 150,000 midsize sedans per year with production starting in late 2010. Kia Motors and Toyota will also begin new vehicle assembly production in 2009 and 2010 in West Point, Ga., and Blue Springs, Miss., respectively. Toyota recently reported that because of the shift in demand for fuel-efficient cars, their Mississippi plant will assemble the Toyota Prius instead of the initially planned Highlander CUV.