Industrial Activity - May 2008Data and Analysis
Comments from manufacturing contacts suggest that production and volume of shipments were down in April from year-earlier levels. Most contacts reported higher production costs, and about two-thirds are cutting employment or hours. Kennesaw State University's Southeast Purchasing Managers Index (PMI) reading was 56.7 in April, up modestly from March's level. (A PMI index over 50 indicates that manufacturing is expanding while a reading below 50 means that the industry is contracting.)
Trucking and Railway
March's national truck tonnage index from the American Trucking Association was down 3.2 percent from February levels and also down slightly from March 2007. Escalating diesel prices and sluggish freight demand are weighing on the performance of several district trucking companies. Regional rail industry data through mid-May were not encouraging either. Overall carload readings were off from year-earlier levels, with a sharp drop in shipments of automotive and construction materials that offset gains in coal and farm products. Intermodal shipments were flat from year-earlier levels.
For the 12-month period ending in March, the value of exports passing though district ports rose 22 percent. In contrast, the region's import values rose only 9 percent. Using state-of-origin export data, regional exports in first quarter 2008 jumped 23 percent from first quarter 2007, whereas export values rose 17 percent for the nation as a whole. The Southeast's strong export performance was led by double-digit gains in shipments from Florida, Georgia, Louisiana, and Mississippi.
The Energy Information Administration (EIA) reported a 6.3 million barrel drop in Gulf Coast crude oil inventories the second week of May. Oil inventories are now in the lower portion of their five-year average range. Motor gasoline inventories in the Gulf Coast remain well above their five-year average range despite a 3.2 million barrel decline since mid-April. Gulf Coast gasoline inventories remain ample partly because of the region's large refining capacity. Inventories in the first three weeks of March averaged roughly 11 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. Despite an uptick in the region's crude oil production in the past three months, year-to-date production averaged 45,000 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 66 rigs operated in the U.S. Gulf Coast during the first three weeks of May, almost 10 rigs fewer than May 2007. Gulf Coast refineries operated at 84 percent of their operable capacity in February, a slight increase from a month earlier.
Through mid-May, 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. 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.
Overall, Alabama's vehicle production is expanding. The three companies with plants in the state—Honda, Hyundai, and Mercedes—assembled more vehicles in 2007 than a year earlier. In early 2008, however, only Mercedes's production of M-Class models is up from 2007 levels.
Production at GM's Doraville plant declined during the first part of the year as the plant reached the end of the 2008 model production cycle. GM will permanently close several assembly plants in 2008, including the Doraville plant in September. 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. Since early 2008, GM cut production rates at the plant and announced layoffs affecting second-shift plant workers.
Decreased production at Nissan's Smyrna plant and the temporary closing of Saturn's Spring Hill plant affected Tennessee's auto production levels. In late February, Nissan offered buyouts to assembly line and maintenance workers at its assembly plants in Smyrna and Decherd. GM's vehicle production in Spring Hill will start up again this summer after a lengthy retooling. The plant is expected to produce about 100,000 Chevy Traverses per year.
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, respectively. Volkswagen has also announced that it is considering several southern states as possible sites for a new assembly plant, with a decision expected in July.