Industrial Activity - February 2009
In January, District manufacturing contacts reported worsening performance across the board. Weak demand, declining business investment, and tighter credit contributed to (and were affected by) persistently weak economic conditions. Levels of production and shipments, as well as incoming new orders, deteriorated further. The proportion of contacts reporting cutbacks in employment and/or work hours increased from December to January, as confirmed by the precipitous decline in manufacturing payrolls throughout the District. Prices for both raw materials and finished goods continue to reflect weakening demand for most manufacturers; some price measures fell below year-earlier levels. The number of export orders received by manufacturers continues to contract, in sharp contrast to the booming growth in exports seen in the first half of 2008. A helpful gauge of regional manufacturing, Kennesaw State University's Southeast Purchasing Managers Index (PMI), increased from 25.8 in December to 34.7 in January, the highest level since September 2008 but 12.1 points below January 2008 levels. (A PMI over 50 indicates expanding manufacturing activity, below 50, contracting activity).
Trucking and Railway
The American Trucking Association's (ATA) national truck tonnage index for December plunged 12.1 percent from November 2008, the largest month-to-month decline since April 1998, when the industry was in the midst of a strike. Regional industry contacts reported that freight demand in January weakened for both trucking and rail companies. Trucking companies servicing retail and building product industries reported a considerable drop in truck tonnage and lower revenues for the fourth quarter of 2008. Regional rail industry data through early February 2009 showed considerable weakness across industry loadings compared to February 2008, with double-digit declines for autos, chemicals, and construction shipments. Weakness in domestic and global freight demand was also reflected in the 15 percent year-over-year drop in intermodal rail shipments.
The value of international shipments passing through District ports slowed in late 2008. For December, exports rose 23.1 percent, and imports weakened, rising only 14.7 percent. Import values declined most in New Orleans, Tampa, and Savannah, reflecting slower inflows of key products such as steel and autos. Similarly, regional-based exports through fourth quarter 2008 slowed dramatically from earlier quarters. Export values declined in only Louisiana and Tennessee. Exports slowed in Alabama, Florida, and Georgia but posted double-digit gains in Mississippi because of higher shipments to Mexico, China, and Russia.
The Energy Information Administration (EIA) reported a 25 million barrel (16 percent) increase in Gulf Coast crude inventories since the beginning of 2009, bringing stocks well above their average range for this time of year. Gulf Coast gasoline inventories have increased 27 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 7 percent in 2009, with two major production platforms in the Gulf of Mexico coming online. The region's crude oil production in 2008 averaged 172,000 barrels, 12 percent below the 2007 average, mostly because of September's hurricane-related production cutbacks.
According to the Baker Hughes Rig Count, 63 rigs operated off the Gulf Coast during January, five rigs fewer than in January 2008. Gulf Coast refineries operated at 85 percent of their operable capacity in November, up slightly from 83 percent the previous month.
District vehicle production fell dramatically in early 2009 with all auto manufacturers posting double-digit production cuts. Several months of dismal vehicle sales have prompted companies with regional assembly plants to drastically adjust production and employment. Most began by offering buyouts or cutting temporary workers. For example, Nissan (the largest regional producer) recently announced a voluntary termination program that eliminates approximately 1,200 workers. Nissan, like other District auto producers, assembled mostly trucks and SUVs—the vehicle segments most affected by rising fuel prices and shifting consumer demand.
The short-term outlook for regional vehicle production is negative given the impact of the financial crisis on vehicle financing and sales. So far, production schedules for new Kia and Volkswagen plants are still on target. However, Toyota recently announced postponement of its production schedule for the Prius model, originally planned for early 2010. Construction of the Tupelo, Miss., plant is almost complete, but Toyota has put the facility on hold until the auto industry as a whole begins to improve.