Recent data indicates freight shipments are in decline across the U.S. - signs of a broader “economic stall” that would limit gross domestic product (GDP) growth in the quarters ahead.
The Ceridian-UCLA Pulse of Commerce Index (PCI), which measures of the flow of goods to U.S. factories, retailers, and consumers, fell 0.5% in September after declining 1% in August. The decline indicates four consecutive months of limited to no increases in over-the-road movement of produce, raw materials, goods-in-process and finished goods since the PCI peaked in May 2010.
Moreover, Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast, says these PCI numbers indicate anemic growth in GDP for the third quarter of 0.7% to 1.7%. “It tells us that inventory is stalled on the nation's thoroughfares,” he added. “Our economy’s loss in traction is alarming and … may foretell a coming decline in GDP and spike in unemployment.”
However, Leamer stressed that with residential investment, consumer durables, business spending, and other component indicators already at or near record lows relative to GDP, it remains unlikely that the U.S. would experience an outright decline back into recession.
“What’s clear from the PCI is that the economy has stalled,” Craig Manson, senior vp and index expert for Ceridian, told Fleet Owner. “Now it will be interesting to see where we go, because October is a key month for trucking.”
The sequential quarterly drop in the PCI is what concerns Leamer the most. He noted that the PCI began 2010 strongly with the first quarter 9.7% above the fourth quarter of 2009. However, the second quarter was only 6.2% above the first, and now the third quarter has increased a mere 2.1% above the second.
“In sum, over the course of the year, growth of the PCI has become less and less, edging toward zero,” he pointed out.
“Peak season demand trends diverged in September, with trends above-seasonal in rail and below- seasonal in truckload and airfreight,” noted Jon Langenfeld, transportation analyst with investment firm Robert W. Baird & Co., in the company’s most recent “Freight Flows” brief.
Langenfeld added that “diverging” freight trends highlight a “divided economy,” which is a function of exposure to different economic segments. Rail and LTL trends are influenced more by industrial/manufacturing activity, while truckload trends are more exposed to retail/consumer and inventory trends.
“We believe industrial trends can remain positive into 2011, given constructive outlooks provided by industrial-related manufacturers in recent weeks,” Langenfeld said. “On the other hand, though consumer deleveraging has been quicker to materialize than expected, debt levels remain well above historical norms; and inventory levels across the supply chain have largely normalized.”
Additionally, he pointed out that September’s truckload demand moderation limits upside expectation for third-quarter TL results, and if this trend continues could put pressure on the “consensus expectations” for the TL sector next year.
Other economic indicators are none too rosy, either. The Conference Board noted that its Employment Trends Index (ETI) declined moderately in September to stand at 97.0, down from August’s revised figure of 97.3. The index is up 9.3% from a year ago, but up just 0.6% from April, said Gad Levanon, associate director of macroeconomic research for the group.
“While continued slow job growth remains the most likely scenario over the next several months, the ETI suggests that the likelihood of another episode of job losses is increasing,” Levanon added. “As employment lags changes in the economy, and with GDP growth forecasted to slow even further in early 2011, we may see negative job numbers next year.”
Still, despite the poor showing of these various metrics, Ceridian’s Manson stressed that there are still some positive factors to consider.
“The ray of hope is that year-over-year – from September 2009 to September 2010 – the PCI is up 5.8%, representing the tenth straight month of growth,” he pointed out. “Yet year-over-year growth has continued to fall since May’s exceptional 9% number to 5.8% in September – and PCI results need to reach 10% to 15% year-over-year growth for a healthy job market. So though we remain in recovery, the tepid growth says our economy lacks the energy to drive employment in the near term.”
