Industrial Activity - May 2009Data and Analysis
For April, Sixth District manufacturing contacts reversed some of the optimism they felt about current conditions in March, but their expectations for future activity improved. As weak demand, declining business investment, and tight credit continue to contribute to weak economic conditions, manufacturers reported activity levels similar to those seen in February, possibly indicating that March improvements were transitory. Levels of production and shipments, as well as incoming new orders, decreased sharply from March levels. The proportion of contacts reporting cutbacks in employment and/or work hours also increased from March to April. Prices for both raw materials and finished goods similarly declined. One bright spot was that inventory levels, although lower than usual, are under control. The number of export orders received by manufacturers reversed last month's improvement.
Kennesaw State University's Southeast Purchasing Managers Index (PMI), a gauge of regional manufacturing, increased from 43.4 in March to 47.1 in April. This reading was the highest since July 2008 but was 9.6 points below the April 2008 reading. (A PMI over 50 indicates expanding manufacturing activity, below 50, contracting activity.) In summary, April showed continued sluggishness in manufacturing in the region.
Trucking and Railway
The American Trucking Associations' (ATA) National Truck Tonnage Index for March dropped 12 percent from a year earlier. According to industry economists, the transportation sector has not yet reached bottom. Regional contacts reported weakening freight demand through mid-May for both trucking and rail companies. Trucking companies servicing the retail industry are particularly affected by weak container imports and sluggish domestic freight. Trucking contacts noted that they do not see margins improving in the near term despite companies' cutbacks in expenses, locations, and employment. Regional rail industry data through mid-May showed considerable weakness across all industries compared to the same period last year. Double-digit declines were reported for shipments of autos, chemicals, and construction materials. Intermodal shipments, closely tied to global trade, are now down 20 percent from May 2008 levels.
The value of international shipments passing through District ports slowed considerably. For the 12-month period ending in March 2009, the value of export shipments slowed to 11.6 percent while imports were up only 1.5 percent. Import values were down in Tampa, Miami, and Savannah, reflecting slower inflows of key products such as autos and furniture. Export values dropped most in New Orleans, Tampa, and Savannah. Regional-based exports for the first quarter of 2009 dropped 17.9 percent from a year earlier. Export values declined in all states, with the exception of Mississippi. Mississippi's export growth was led by increased shipments of poultry, agriculture, and transportation equipment.
The Energy Information Administration (EIA) reported a 36.0 million barrel (23 percent) increase in Gulf Coast crude oil inventories since the beginning of 2009, bringing stocks above their average range for this time of year. Gulf Coast gasoline inventories have stabilized at around 71 million barrels since March, well above their seasonal average, as low gasoline consumption compels refiners to cut back activity.
Production and Refining
According to the EIA's short-term outlook, national crude oil production is expected to increase 5 percent in 2009, with two major production platforms in the Gulf of Mexico coming online. The region's year-to-date crude oil production has averaged 11,000 barrels, or 1 percent below the same period in 2008.
According to the Baker Hughes Rig Count, 46 rigs operated off the Gulf Coast during April, 16 rigs fewer than in April 2008. Gulf Coast refineries operated at 81 percent of their operable capacity in February, down 4 percent from year-earlier levels.
Dismal vehicle sales have prompted most companies with regional assembly plants to drastically adjust production and employment. Through early May 2009, District assembly production plunged 54.4 percent from year-earlier levels, with all companies posting double-digit declines. Several auto suppliers located across the District have recently announced layoffs and cutbacks in hours, most related to extended production downtime at Chrysler and GM plants. The short-term outlook for regional vehicle production and their suppliers is negative given the impact of tight credit on vehicle financing and sales.