Industrial Activity - March 2009
Through February, District manufacturing contacts reported worsening performance across the board. Weak demand, declining business investment, and tight credit contributed to (and were affected by) 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 January to February, 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 34.7 in January to 40.6 in February, the highest level since September 2008 but 6.5 points below February 2008. (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 January dropped 10.8 percent from a year earlier. Regional industry contacts reported that freight demand in early 2009 weakened for both trucking and rail companies. Trucking companies servicing the retail industry are particularly affected by weak container imports. According to estimates from a Global Insight survey, retail container imports in January were down 15 percent from a year earlier. Similarly, regional rail industry data through mid-March showed considerable weakness across most industry loadings compared to the same period last year, with double-digit declines for autos, chemicals, and construction-related shipments.
The value of international shipments passing through District ports slowed considerably in late 2008 and early 2009. For the 12-month period ending January 2009, the value of export shipments rose 19.6 percent while imports were up only 10.5 percent. Import values decelerated most in New Orleans, Tampa, and Savannah, reflecting slower inflows of key products such as steel and autos. Export values to Mexico and Canada dropped in December and January. Regional-based exports through fourth quarter 2008 slowed dramatically from earlier quarters. Export values declined in only Louisiana and Tennessee. Exports slowed most 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 23 million barrel (14 percent) increase in Gulf Coast crude inventories since the beginning of 2009, bringing stocks to the top of their average range for this time of year. Gulf Coast gasoline inventories have increased 30 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 8 percent in 2009, with two major production platforms in the Gulf of Mexico coming online. The region's 2009 year-to-date crude oil production has averaged 42,000 barrels, or 3 percent above the same period in 2008, mostly because of increased production at the Gulf of Mexico Thunder Horse platform.
According to the Baker Hughes Rig Count, 57 rigs operated off the Gulf Coast during February, two rigs more than in February 2008. Gulf Coast refineries operated at 85 percent of their operable capacity in December, holding steady from the previous month.
District vehicle production fell dramatically in March 2009. Several months of dismal vehicle sales have prompted companies with regional assembly plants to drastically adjust production and employment. The short-term outlook for regional vehicle production is negative given the impact of tight credit on vehicle financing and sales. So far, production schedules for the new Kia and Volkswagen plants are still on target. However, Toyota recently announced postponement of its production schedule for the Prius model at its plant in Tupelo, Miss. Construction of the Mississippi plant is almost complete, but Toyota has put the facility on hold until the auto industry as a whole begins to improve. In the longer term, the outlook for District auto production is more encouraging as companies more quickly develop new technologies to adjust to challenging times. Recently, for example, Mercedes announced a $290 million expansion in new equipment and robotics for the company's new generation of SUVs and cars. On a similar note, Nissan recently reported the launching of its electric vehicle (EV) program to limited commercial clients in 2010 with the possibility of advancing deliveries to certain retail networks in less than two years. Nissan is currently planning an EV battery manufacturing plant in Smyrna, Tenn.