A cautious outlook as Southeast activity strengthens into 2Q

July 2012 - Overall activity levels in the Southeast strengthened throughout the first quarter and into April as employment, housing and manufacturing data continued to carry positive undertones. From a sector-specific perspective, strength in the auto and oil and gas industries were two of the main contributors to more robust economic activity in the region.

Manufacturing new orders and production remained positive as auto and light truck assemblies averaged a 9.97 seasonally adjusted annual rate throughout the first four months of 2012 versus 7.97 for the same period in 2011. In addition, rig counts were up more than 13 percent on a year-over-year basis in New Mexico, Oklahoma and Texas, but those in Louisiana and Arkansas posted declines of more than 24 percent. Depressed natural gas prices were the main culprit for the asymmetric declines as drillers shifted rigs to more oil-focused regions.

Manufacturing housing and employment remained relatively buoyant. On average, total housing permits were up nearly 25 percent year over year, driven mainly by a 21 percent rise in single-unit dwellings. Stronger housing data continues to be supported by falling unemployment rates and a pickup in manufacturing employment.

Despite a strong start to 2012, industrial metal prices have given back all of their first-quarter gains as fears of further deterioration in Europe’s economy and a continued slowdown in China overshadowed strength from the United States. Although inventories across the metals spectrum remain mixed, downstream buyers continue to purchase on a hand-to-mouth basis, a trend that is likely to foster increased volatility looking ahead.

Going forward, metal buyers should be cognizant of events that happen outside of the United States, specifically in China, as the country commands more than 45 percent of global metal consumption.

Although metal prices have weakened recently, a bounce back to first-quarter 2012 highs on restocking demand could materialize, but the probabilities remain low. A further softening or consolidation period in metal prices may be the more likely scenario as demand experiences weak seasonality trends and there are uncertainties surrounding monetary and fiscal policies across the globe.

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Data analyzed by Ken Hoffman, CFA Sector Head, Global Metals Research, Bloomberg. Contact him at  This e-mail address is being protected from spambots. You need JavaScript enabled to view it

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