Industrial Activity - June 2008Data and Analysis
Most industrial contacts continued to report that production and volume of shipments were down in May 2008 from year-earlier levels, with many reporting cutbacks in employment or work hours. Kennesaw State University's Southeast Purchasing Manager Index (PMI) for May 2008 dropped to 48.8, down sharply from readings in March and April, mostly because of inventory corrections. (A PMI index over 50 indicates that manufacturing is expanding while a reading below 50 means that the industry is contracting). Nearly all contacts reported paying higher prices for raw materials.
Data on continuing unemployment claims for the District's manufacturing sector in April were 20 percent higher than a year earlier. Jobless claims climbed most for mature industries such as textile and apparel. Job losses in industrial machinery, fabricated metals, and transportation equipment affected workers in Tennessee while cutbacks in auto production were reported in Louisiana and Mississippi. On the bright side, new auto assembly plants and suppliers around the Kia Plant in West Point, Georgia, have already committed investments that could add hundreds of jobs for areas of Georgia and Alabama in early 2009. Meanwhile, stronger global demand continued to boost regional exports of chemicals and transportation equipment.
Trucking and Railway
The American Trucking Association's national truck tonnage index for April was down 0.6 percent from March levels but 2.1 percent higher than in April 2007. Industry contacts noted that rapidly rising fuel prices are adding more uncertainties to their industry's outlook. With worsening business conditions and diesel prices nearing the $5 mark, several regional transportation companies reported financial losses in the first quarter. Regional rail data through mid-June were not encouraging either. Overall carload readings through mid-June were off 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 April, exports rose 24 percent, with most gains posted the by New Orleans, Savannah, and Tampa Customs Districts. This increase has reportedly created logistical problems for some regional ports because of shortages of vessel capacity and containers. For the same period, the value of regional imports rose 10 percent, mostly driven by higher import prices. For the first four months of 2008, U.S. auto import values climbed 6 percent above 2007 levels.
The Energy Information Administration (EIA) reported a 2.4 million barrel rise in Gulf Coast crude oil inventories the third week of June. This increase marks the first gain after five consecutive weeks of inventory drops. Despite the recent rise, oil inventories remain below the lower limit of their five-year average range. Motor gasoline inventories in the Gulf Coast are above their five-year average range despite a 6 percent decline since May. Gulf Coast gasoline inventories remain ample partly because of the region's large refining capacity. Inventories in May and early June have averaged roughly 7 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 40,000 barrels, or 3 percent, below the same period last year, mostly because of large declines in January and February. According to the Baker Hughes Rig Count, roughly 68 rigs operated in the U.S. Gulf Coast during the first three weeks of June, almost 11 rigs fewer than in June 2007. Gulf Coast refineries operated at 84 percent of their operable capacity in March, a slight increase from a month earlier.
Through mid-June, vehicle production in District states remained weak. Only one of the five companies with plants in District states reported higher production and sales at that plant this year compared to the same period in 2007. Two vehicle models, Nissan's Altima and Mercedes M-class vehicles, have posted consistent production gains this year. Vehicle production for the rest of 2008 will be affected by the final closing of GM's Doraville, Georgia, facility and the restarting of production at GM's Spring Hill, Tennessee, plant this summer.
Two foreign auto companies (Kia Motors and Toyota) will begin new vehicle assembly production in 2009 and 2010 in West Point, Georgia, and Blue Springs, Mississippi, respectively. Volkswagen has also announced that has narrowed its plant site selection decision to three states—Michigan, Alabama, and Tennessee—with a decision expected in July.