Industrial Activity - October 2008Data and Analysis
In September, contacts noted weakness in production, shipments, and new orders compared with a year earlier. An increasing number of contacts reported cutbacks in employment or work hours. Price pressures on raw materials eased significantly, leading to decelerating price increases of finished goods. While contacts noted higher export orders relative to a year earlier, the level of such orders has declined for the second consecutive month. Kennesaw State University's Southeast Purchasing Managers Index (PMI) for September 2008 declined to 41.8, down from 44.7 in August, and 9.3 points below its' September 2007 level. (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 August was down 1.6 percent from July levels, the largest drop since March 2008. However, the index was 2.5 percent higher than a year earlier. Regional industry contacts reported weak freight demand and revenue growth. Similarly, freight volume of regional rail companies continued to be weaker than last year. Overall carload readings through October were down 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. Overall, higher fuel prices relative to a year earlier and soft freight demand continue to trouble the industry's outlook.
The value of international shipments passing through District ports continued to exceed 2007 levels. For the 12-month period ending in August, exports rose 28.3 percent, with all District ports posting double-digit gains. For the same period, the value of regional imports rose 17.7 percent, mostly driven by higher import prices. While import values across regional ports were still rising, import volumes declined from year-earlier levels. Regional-based exports experienced stronger demand from Canada and Mexico.
The Energy Information Administration (EIA) reported a combined 16.9 million barrel (11 percent) increase in Gulf Coast crude inventories since two hurricanes struck the region in the first half of September. Gulf Coast gasoline inventories have recovered significantly in the aftermath of the hurricanes, rising 20 percent since the September 19 low, bringing them near the upper end of their average range. For the country as a whole, gasoline stocks are now at 196 million barrels, up 10 percent in September after reaching the lowest level since the beginning of the data series in 1990.
Production and Refining
According to the EIA's short-term outlook, national crude oil production will increase 6 percent in 2009, with two major production platforms in the Gulf of Mexico coming online. The region's crude oil production year-to-date has averaged 136,000 barrels, or 10 percent, below the same period last year mostly because of September's hurricane-related production cutbacks. According to the Baker Hughes Rig Count, roughly 72 rigs operated in the Gulf Coast during the first three weeks of October, 24 rigs fewer than in October 2007. Gulf Coast refineries operated at 89 percent of their operable capacity in July, stable from a month earlier.
Through October, vehicle production in District states weakened further. About four-fifths of the vehicles assembled in the region are trucks or SUVs—the vehicle segments most affected by rising fuel prices and shifting consumer demand. Only Alabama's Mercedes plant reported slightly higher production levels, due to international demand for their vehicles, when compared to the same period in 2007.
The short-term outlook for regional vehicle production is uncertain given a weakening economy and the closing of GM's Doraville, Ga., facility in September. Other plants have recently announced output reductions of slow-selling trucks and SUVs to work off high inventory levels. However, the District's longer-term auto production outlook was brightened by Volkswagen's selection of Chattanooga, Tenn., as the site for its $1 billion auto factory. The company recently announced that 80 percent of the vehicles' parts will be produced in North America, with plans to have a supplier park nearby. Volkswagen's initial production will be 150,000 midsize sedans per year with production starting in early 2011. Kia Motors and Toyota will also begin new vehicle assembly production in 2009 and 2010 in West Point, Ga., and Blue Springs, Miss., respectively. Toyota recently reported that because of the shift in demand for fuel-efficient cars, their Mississippi plant will assemble the Toyota Prius instead of the initially planned Highlander CUV.