Industrial Activity - March 2008Data and Analysis
The Southeast's Purchasing Manager's Index (PMI) published by Kennesaw State University increased by 0.3 points in February to 47.1—an improvement from January but the index's fourth consecutive reading below 50. A PMI index over 50 indicates that manufacturing is expanding while a reading below 50 means that the industry is contracting.
A major development for the District's industrial sector is the U.S. Air Force's selection of Northrop Grumman Corp. and EADS North America to build the next-generation fleet of aerial refueling tankers, which brings an aircraft assembly plant to Mobile. Estimated at up to $40 billion, the deal includes 179 planes to be delivered over the next ten–fifteen years. Los Angeles-based Northrop plans to assemble its tankers in Mobile, creating up to 1,500 jobs in the new factory. Airbus, an EADS subsidiary, has announced plans to add another 300 jobs.
Anecdotal reports on manufacturing conditions varied by industry. For instance, those linked to the oil and gas industry, defense, and aerospace reported stable to increasing production, while those associated with residential housing continue to note production cutbacks and declines in new orders. Reports also indicated that several firms were expanding export activity or were gaining new domestic customers because of the higher price of imports.
Trucking & Railway
Several regional trucking companies reported sluggish freight volumes over recent months. However, some industry contacts also noted that demand appears to have stopped falling. Nationally, the American Trucking Association tonnage index for January jumped 5.3 percent from a year earlier, the biggest year-to-year gain since January 2005. The latest gain marked three consecutive month-to-month increases. Regional rail industry data for January show widespread weaknesses in shipments of housing-related products and automobiles. Intermodal shipments also posted large declines. Despite generally weak freight volumes, some companies announced rate increases in January because of higher fuel costs.
The pace of imports through Sixth District ports is slowing. For calendar year 2007, the 5.7 percent rise in import values through Southeastern ports contrasted with the double-digit increases recorded earlier in the decade. A closer look at import data through January 2008 shows a mixed picture across the region's ports. Overall import values are slowing less than in other parts of the country thanks to solid import flows through the Savannah, New Orleans, and Mobile Customs Districts. However, imports through Tampa and Miami have been slowing and actually declined in January 2008 on a year-over-year basis.
Finally, regional intermodal shipments carried by major rail companies servicing District states continued to post weaknesses for the year through early March. Carloads for intermodal shipments for both CSX and Norfolk Southern declined 2 and 5 percent, respectively, from comparable 2007 levels.
In contrast to the slowing import picture, export volumes are increasing. Exports through Southeast ports were up over 20 percent year-over-year in January 2008. State export data also show double-digit gains in key export sectors across Sixth District states between 2005 and 2007.
Gulf Coast crude oil inventories maintained their upward trend for most of February and the early part of March. According to Energy Information Administration (EIA) data, Gulf Coast inventories rose by 2.8 million barrels in the first week of March. Gulf Coast crude inventories are in the upper portion of their five-year average range. Gasoline inventories for the Gulf Coast remain well above their average range, despite a 2.2 million barrel drop the second week of March, which pulled down national gasoline inventories from their fourteen-year high. Declining gasoline demand was partly responsible for the buildup in gasoline inventories.
Production and Refining
According to the EIA's short-term energy outlook, average 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 the rest of the nation. National petroleum output is expected to grow in 2009 with the startup of Thunder Horse and Tahiti platforms in the Gulf of Mexico. Sixth District crude oil production for the year through the first week of March averaged 57,000 barrels below the same period last year. The Baker Hughes Rig Count indicated that the number of rigs operating in the U.S. Gulf Coast declined slightly in the second week of March, including a twelve-rig decline in Louisiana. Gulf Coast refineries operated at near 88 percent of their operable capacity in December 2007.
Vehicle production in the region remained soft in early 2008. Only two of the five companies assembling vehicles in the Southeast reported higher production levels for 2008 through mid-March than a year earlier. District-assembling production was off 12 percent from 2007 levels compared with a 7 percent production decline nationwide. Some of the recent production cutbacks have been the result of scheduled closings of GM's two regional plants—Spring Hill, Tennessee, and Doraville, Georgia.
Alabama vehicle production is expanding but adjusting to uncertain economic times. The state's three auto producers—Honda, Hyundai, and Mercedes—assembled more vehicles in 2007 than in 2006. Honda and Mercedes production in 2007 and early 2008 has been at near capacity, while Hyundai's production has slowed.
Production at GM's Doraville plant has declined during the first part of 2008 as it reached the end of the 2008 model production cycle. GM chose Doraville as one of several assembly plants to permanently close in 2008. The Doraville plant will close in September 2008. Ford closed its Hapeville plant last year.
Production at GM's Shreveport plant is off sharply from 2007 as sales of the Chevrolet Colorado, GMC Canyon, and HUMMER H3 weakened in late 2007 and early 2008. GM recently cut production rates at the plant and announced layoffs affecting second-shift plant workers.
Production at GM's Spring Hill plant dropped sharply in 2007 because of the company's decision to temporarily close and retool the plant and to transfer two Saturn models in April 2007 to GM plants in Mexico. Recently, the company announced that the retooling of Spring Hill will allow summer production of about 100,000 Chevy Traverse, a new crossover vehicle similar to other GM models that have been selling well. At the same time, production at Nissan's Smyrna plant has also slowed.
Two foreign auto companies (Kia Motors and Toyota) have announced new vehicle assembly production for 2009 and 2010 in West Point, Georgia, and Blue Springs, Mississippi. Volkswagen has also announced that is considering several Southern states as possible sites for a new assembly plant in the United States.