Freight trends picked up for trucking as October came to a close, but a mix of both positive and negative factors indicates volumes should remain choppy through the end of 2012 and into 2013.

Benjamin Hartford, a transportation analyst with Wall Street investment firm Robert W. Baird & Co., noted in the company’s most recent Freight Flows brief that carriers described freight trends through the third quarter as “inconsistent,” with multiple carriers terming the environment “choppy.”

“Sluggish trends have continued October-to-date, contrary to expectations, but that said, contacts have expressed expectations for a modest peak from late October into early November,” Hartford noted in Baird’s report.

Part of that confidence stems from an uptick in manufacturing, with the Institute for Supply Management (ISM) noting that economic activity in the manufacturing sector expanded in October for the second consecutive month following three months of slight contraction.

The group’s overall PMI metric for the manufacturing sector registered 51.7% in October, an increase of 0.2 percentage points from September's reading of 51.5% indicating a slightly faster rate of growth.

Bradley Holcomb, chairman of ISM’s manufacturing business survey committee added that the group’s new orders index registered 54.2% in October, an increase of 1.9 percentage points from September and the second consecutive month for growth in new orders, while its production index registered 52.4%, an increase of 2.9 percentage points indicating growth in production following two months of contraction.

Lynn Franco, director of economic indicators at the Conference Board, noted that its Consumer Confidence Index increased again in October to 72.2, up from 68.4 in September, and is now at its highest level this year.

“Consumers were considerably more positive in their assessment of current conditions, with improvements in the job market as the major driver,” Franco noted, pointing to last week’s report from the U.S. Bureau of Labor Statisticsthat the U.S. economy added 171,000 jobs in October, though unemployment rate increased to 7.9% from 7.8% in September.

“Consumers are modestly more upbeat about their financial situation and the short-term economic outlook, and appear to be in better spirits approaching the holiday season,” added Franco, with those claiming business conditions are "good" rising to 16.5% from 15.3%, while those saying business conditions are "bad" edged down to 33.1% from 33.8%, according to the Conference Board’s most recent survey.

Such upticks in U.S. economic activity helps boost freight demand, which is turn is helping the trucking industry sustain a push for higher rates. Baird estimated that core contractual TL rates should end 2012 some 2% to 3% higher than 2011, yet stressed that the level of rate improvement moderated for truckers in the third quarter this year – with one carrier noting that third quarter yields were flat sequentially for the first time in three years.

Based on conversations with carriers and shippers, Baird projects only 1.5% to 2% year-over-year rate growth for 2013.

“Capacity remains stable as carriers are unwilling to expand capacity into this uncertain environment and softer demand trends are pressuring spot market pricing,” Hartford added. “Core contractual rate growth is expected to continue to moderate but limited fleet expansion from both small and large carriers does provide some pricing support.”

However, he pointed out that fleet growth continues to be constrained by an ongoing shortage of qualified drivers and more expensive equipment influencing capital deployment decisions, with rising costs, including equipment, labor, fuel, and maintenance, continuing to pressure the bottom line of carriers.

For example, Baird noted that diesel fuel prices increased 12% through the third quarter and have trended above $4 per gallon for 10 consecutive weeks. “Absent a more robust economic environment, the domestic freight outlook reflects slow, stable volume growth and moderating pricing trends,” Hartford said.