Industrial Activity - January 2009
Through December, District manufacturing contacts reported worsening statistics across the board. Weak demand, declining business investment, and tighter credit contributed to (and were affected by) extremely 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 to 2008's highest levels, as confirmed by the precipitous decline in manufacturing payrolls throughout the District. For most manufacturers, prices for both raw materials and finished goods continue to show a severe weakening in demand, and for some, prices fell below year-earlier levels. The number of export orders received by manufacturers declined considerably, in sharp contrast to the first half of 2008. A helpful gauge of regional manufacturing, Kennesaw State University's Southeast Purchasing Managers Index (PMI), reflects these weak conditions: It declined to 25.8 for December, down from 31.6 in November and 16 points below December 2007 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 November was up 1.7 percent from October but down 2 percent from November 2007. However, regional industry contacts reported that freight demand remained weak for both trucking and rail companies. Their outlook for freight demand continues to be negative as expectations of weaknesses in the housing, auto, and retail sectors deepens. Through December, freight volumes of regional rail companies continued to be weaker than in 2007. Shipments of automotive and construction materials continued to drop sharply, offsetting gains in shipments of coal, chemicals, and farm products. Intermodal shipments were lower than year-earlier levels.
The value of international shipments passing through District ports continued to far exceed 2007 levels. For the 12-month period ending in October, exports rose 28.3 percent, with all District ports posting double-digit gains. For the same period, the value of regional imports rose 20.7 percent. Driven by higher import prices, import values across regional ports were still rising, but volumes declined from year-earlier levels. Regional-based exports through the third quarter of 2008 jumped 30 percent from year-earlier levels. Export values from Louisiana and Mississippi posted the largest gains, led by strong demand for agricultural products, poultry, and mineral fuels. Regional exports in 2008 were boosted by stronger demand from Canada and Mexico.
The Energy Information Administration (EIA) reported a combined 8.6 million barrel (5 percent) decrease in Gulf Coast crude inventories since mid-November, bringing stocks near the midpoint of their average range for this time of year. Gulf Coast gasoline inventories have increased 22 percent since their September posthurricane low as refineries continue to boost gasoline production and gasoline demand remains below year-ago 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, or 12 percent below the 2007 average, mostly because of September's hurricane-related production cutbacks. According to the Baker Hughes Rig Count, 62 rigs operated in the Gulf during December 2008, two rigs fewer than in December 2007. Gulf Coast refineries operated at 83 percent of their operable capacity in October, up from 60 percent in September.
Through December, vehicle production in District states continued to worsen. Production volumes fell in regional assembly plants in response to the dramatic drop in vehicle sales in the fourth quarter. About four-fifths of the vehicles assembled in the region are trucks 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 the impact of the financial crisis on vehicle financing and sales. Cutbacks in vehicle production and hours worked have been widely reported across most regional plants. Temporary plant closings were recently reported for the Mercedes plant in Vance, Ala., the Saturn plant in Spring Hill, Tenn., and the GM plant in Shreveport, La. However, the District's longer-term auto production outlook was brightened by Volkswagen's selection of Chattanooga, Tenn., as the site for its $1 billion auto factory. The factory will assemble 150,000 midsize sedans per year, with production starting in late 2010. VW announced recently that some of its production will be for export outside the NAFTA region, following a diversified production trend of other regional producers like Mercedes and Honda.