Industrial Activity - September 2008Data and Analysis
In August, contacts noted a decrease in production, shipments, and new orders compared with a year earlier. Many contacts continued to report cutbacks in employment or work hours. Price pressures on raw materials eased somewhat but were still historically high. While contacts noted higher export orders relative to a year earlier, the level of such orders has declined from previous months. Kennesaw State University's Southeast Purchasing Managers Index (PMI) for August 2008 declined to 44.7, down from 50.7 in July, and 7.3 points below August 2007 levels. (A PMI over 50 indicates expanding manufacturing activity, below 50, contracting activity).
Trucking and Railway
The American Trucking Association's national truck tonnage index for July was down 0.9 percent from June levels and 3.8 percent higher than a year earlier. Regional industry contacts reported modest increases in trucking activity but weak revenue growth. Freight demand for regional rail companies continues to be weaker than last year. Overall carload readings through mid-September 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, rising fuel prices and soft freight demand continue to trouble the industry's outlook.
The value of international shipments passing through District ports continues to exceed 2007 levels. For the 12-month period ending in July, exports rose 27.7 percent, with all District ports posting double-digit gains. For the same period, the value of regional imports rose 15.3 percent, mostly driven by higher import prices. Through July 2008, while import values across regional ports were still rising, import volumes declined from year-earlier levels. Regional-based exports benefited from Canada and Mexico's strong demand. Regional exports also benefited from increased orders from Brazil, the United Kingdom, Germany, and China.
The Energy Information Administration (EIA) reported a combined 7.3 million barrel (5 percent) decline in Gulf Coast crude inventories during the second and third week of September. Two hurricanes struck the region early in the month, causing a halt in nearly all of the Gulf's oil production and significantly reducing the pace of oil imports. The storms also had a major impact on motor gasoline inventories. Gasoline inventories in the Gulf Coast dropped 11 percent in the first three weeks of September, bringing them well below their average range. For the country as a whole, gasoline stocks are now at 179 million barrels, the lowest level since the beginning of the data series in 1990. The hurricanes' impact on refining capacity and gasoline stocks has led to shortages of refined products in portions of the Sixth District, particularly the Atlanta and Nashville areas.
Production and Refining
According to the EIA's short-term outlook, national crude oil production will increase six percent in 2009, with two major production platforms in the Gulf of Mexico coming onstream. The region's crude oil production year-to-date has averaged 69,000 barrels, or 5 percent, below the same period last year mostly because of September's hurricane-related production cutbacks and large declines in January and February. According to the Baker Hughes Rig Count, roughly 68 rigs operated in the Gulf Coast during the first three weeks of September, three rigs fewer than in September 2007. Gulf Coast refineries operated at 89 percent of their operable capacity in June, stable from a month earlier.
Through early September, 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 when compared to the same period in 2007.
The short-term outlook for regional vehicle production is uncertain given a sluggish economy and the final 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 plant will assemble 150,000 midsize sedans per year with production starting in late 2010. 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.