A curious disconnect continues to form between overall economic trends, which are trending downward, and freight markets that are witnessing growth in volumes and pricing for carriers.
According to Jon Langenfeld, transportation analyst with investment firm Robert W. Baird & Co., a “significant” improvement in truckload utilization or loaded miles per truck is occurring; a result of ongoing capacity rationalization. “Notably, utilization is trending toward levels experienced in 2005, 2006 and early 2008 – periods of freight rate growth,” he said in Baird’s most recent “Freight Flow” report.
Though freight demand is moderating to a degree – Baird’s Freight Index was up 5.6% in July this year versus the same month in 2009, compared to 6.4% in a similar June-to-June comparison – Langenfeld pointed out that July’s 2% seasonal decline in freight volume is modestly better than the traditional 4% seasonal summer drop off.
“Our private company contacts reveal some signs of slowing, though broad-based [freight] demand trends appear healthy,” he added, noting that without strong capacity growth, increasing freight demand will further exacerbate tight supply conditions. Langenfeld explained such conditions in the freight market should occur even with modest U.S. economic growth, with gross domestic product (GDP) increasing 2% or more.
By contrast, the overall economic picture is gloomier. For example, the National Assn. of Realtors recently report reported that sales of previously owned homes fell 27.2% from June to a seasonally adjusted rate of 3.83 million – the lowest level since the group started tracking the data in 1999. On top of that, the Labor Department noted the U.S. unemployment rate has inched up to 9.6%.
“The economy is especially vulnerable when it comes to additional negative economic shocks, whether they come from credit markets, the geo-political environment, the policy environment or other unforeseeable areas,” noted George Mokrzan, senior economist for the Columbus, OH-based Huntington Bank.
Mokrzan pointed out that, although housing prices are improving and interest rates remain low, consumer spending remains sluggish because of a weak labor market and concerns about an increasingly glum U.S. government debt outlook.
As a result, the general economic and freight pictures are starting to diverge to a degree, said Eric Starks, president of research firm FTR Associates.
“It’s got people perplexed to a degree,” he told FleetOwner. “Manufacturers are still doing well, production is still growing, and that’s all suggesting freight volumes will continue to grow. The million-dollar question, though, is whether a stronger falloff in economic trends means freight will follow suit.”
Looking at the trends, Starks doesn’t belief a feared “double-dip” recession is in the works; rather, what may be occurring is a “growth recession,” whereby the numbers indicate growth on a general basis, yet it feels like a recession because jobs are not being added.
Norbert Ore, chair of the Institute for Supply Management’s (ISM) manufacturing business survey committee, noted in the group’s monthly report for August that – on paper, at least – the numbers are generally trending in the right direction.
“In terms of month-over-month improvement, the production and employment indexes experienced the greatest gains [in August], while new orders continued to grow but at a slightly slower rate,” he said, noting that August thus represents the 13th consecutive month of growth in U.S. manufacturing.
ISM’s purchasing managers index (PMI) registered 56.3% in August, an increase of 0.8 percentage points when compared to July’s reading of 55.5%. The average PMI for January through August (57.8%) corresponds to a 5.3% increase in real gross domestic product (GDP). In addition, if the PMI for August (56.3%) is annualized, it corresponds to a 4.8% increase in real GDP annually, Ore said.
ISM’s New Orders Index registered 53.1% in August, which is a decrease of 0.4 percentage points when compared to July, while the group’s production index registered 59.9% in August, a one-month increase of 2.9 percentage points. Manufacturers’ inventories also grew in August, ISM noted, climbing 1.2 percentage points to 51.4% from July.
Those are some of the reasons why economists such as Huntington’s Mokrzan hold to a relatively positive economic outlook.
“Although the U.S. economy is still vulnerable, a ‘double-dip’ recession is unlikely with slow-to-moderate growth continuing this year and gradually accelerating in 2011,” he said, noting that corporate profits are close to achieving a new U.S. record high, with strong growth in both manufacturing and non-manufacturing sectors and improving exports holding out more hope for expansion.
“Exports hold the greatest potential for economic growth and opportunity in the U.S. in the next decade, especially as wage levels rise in emerging markets,” Mokrzan said.