Industrial Activity - July 2008Data and Analysis
Most 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 all contacts reported paying higher prices for raw materials. Two-fifths of contacts noted high and steady export orders, however. Kennesaw State University's Southeast Purchasing Manager Index (PMI) for June 2008 improved to 52.3, up from May and early 2008 but still 5 percentage points below June 2007 levels. (A PMI over 50 indicates that manufacturing is expanding while a reading below 50 means that the industry is contracting).
Trucking and Railway
The American Trucking Association's national truck tonnage index for May was up 0.5 percent from April levels and 3.2 percent higher than a year earlier. Industry contacts noted that the favorable year-to-year comparisons continued to reflect the weaknesses of 2007 rather than this year's growth. Rapidly rising fuel prices, currently nearing the $5 per gallon mark, are placing financial burdens on most motor carriers. Overall carload readings through mid-July 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.
The value of international shipments passing through District ports continues to exceed 2007 levels. For the 12-month period ending in May, exports rose 25 percent, with most gains posted by the New Orleans, Savannah, and Tampa Customs Districts. This increase has reportedly created logistical problems for some regional ports because of the shortages of vessel capacity and containers led by the drop of imports from Asia. For the same period, the value of regional imports rose 10.7 percent, mostly driven by higher import prices. Through May 2008, for example, while import values across regional ports were still rising, import volumes declined 15 percent from year-earlier levels.
The Energy Information Administration (EIA) reported a two million barrel drop in Gulf Coast crude oil inventories the third week of July from the same period in June. Oil inventories remain near the lower limit of their five-year-average range. Motor gasoline inventories in the Gulf Coast are above their five-year-average range and have risen 5 percent since June. Gulf Coast gasoline inventories remain ample partly because of the region's large refining capacity. Since March, inventories have averaged roughly 9 percent more than during the same period last year.
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 U.S. 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 U.S. Gulf Coast during the first three weeks of July, 11 rigs fewer than in July 2007. Gulf Coast refineries operated at 87 percent of their operable capacity in April, up from 84 percent a month earlier.
Through mid-July, vehicle production in District states remained weak. Only one of the five companies with plants in District states reported higher production at that plant this year compared to the same period in 2007. Two vehicle models, Nissan's Altima and Mercedes' M-class, have posted consistent production gains this year. Vehicle production for the rest of 2008 will be affected by lower production of SUVs and trucks, the final closing of GM's Doraville, Ga., facility and the restarting of production at GM's Spring Hill, Tenn., plant this summer. Honda and Nissan have recently announced output reductions of trucks and SUVs while raising production of best-selling compacts.
The District's auto production outlook is 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 shift in demand for fuel-efficient cars, their Mississippi plant will assemble the Toyota Prius instead of the initially planned Highlander CUV.