The latest roundup of economic news gives cause for some optimism as freight volumes and manufacturing indicators rebound, but an unpredictably weak housing sector clouds the bigger picture.
The American Trucking Assns. (ATA) reported for-hire truck tonnage increased a seasonally adjusted 1.6% in February, following a revised 3.1% slide in January. But ATA chief economist Bob Costello was far from bullish on freight trends, attributing the February increase to “easy comparisons” with a weak January.
“Freight levels remain challenging, despite some anecdotal reports of better volumes in late March,” Costello said. “At this time, however, it is difficult to ascertain whether those reports are due to seasonal blips or an underlying trend. We continue to look to the second half of 2007 for better tonnage volumes. But we shouldn’t expect a robust rebound in freight during 2007.”
And the so-called “robust rebound” should certainly not be expected in the housing sector, based on Federal Reserve chairman Ben Bernanke’s testimony before the Joint Economic Committee of the U.S. Congress today.
“The near-term prospects for the housing market remain uncertain,” Bernanke said. “Even if the demand for housing falls no further, weakness in residential construction is likely to remain a drag on economic growth for a time as homebuilders try to reduce their inventories of unsold homes to more normal levels.”
Bernanke warned that the correction in the housing sector could be more severe than expected, particularly in the subprime mortgage sector.
He noted that there has been a slowdown in business spending recently, especially in capital goods used by the construction and motor vehicle industries.
On a positive note, Bernanke expects business investment in equipment and software to grow at a moderate pace this year, driven by profitability, low interest rates, and sales growth. Exports have been strong, growing 9% in 2006.
It is likely the inventory correction in the motor vehicle industry “may have largely run its course,” he said. This implies that production and manufacturing of autos may rebound and consequently shore up truck traffic.
This could be partially reflected in the Census Bureau report on durable goods released today. New orders of transportation equipment jumped 9.6% to $60 billion in February. Overall, new orders for manufactured durable goods increased 2.5% to $206.9 billion.
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