Freight volumes are set for a significant rebound in the second quarter with manufacturers reporting that bloated inventories in previous months have been drawn down to reasonable levels. For the first time in six months, manufacturing customers—which include wholesalers, retailers and finished goods producers—have inventories that are believed to be “too low,” manufacturers said.
This suggests shippers will step up transportation use as they seek to replenish inventories. During the preceding five months inventories were too high, which dampened freight conditions in the first quarter.
Manufacturers’ inventories contracted slightly, as evidenced by the 47.5 reading on the Manufacturing ISM Report on Business released by the Institute for Supply Management. Analyst Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC) noted that in January, that index was 39.9, which represented a large liquidation of manufacturing inventories. A reading of 50 would indicate that inventories are stable.
“That liquidation slowed substantially in March,” Brady told FleetOwner. “Looking at other data indicated that manufacturers’ inventories were too high so they wanted to draw down their inventory.
“What you’re seeing is the inventory correction has probably been completed—it ended in the first quarter. Now that inventories are roughly in balance with sales volumes we should see a pickup in freight volumes; the question is how strong will it be,” Brady added
Overall, the manufacturing sector grew at a slower pace in March than the previous month. The survey rated the manufacturing growth index to be 50.9, with any reading above 50 indicating growth. That marked a 1.4-point drop from February’s index of 52.3.
In the construction industry, there were some positive developments in February beyond single-family homes. Total construction spending rose 0.3% in February to a seasonally adjusted annual rate of $1.17 trillion, according to the U.S. Census Bureau.
In spite of the relatively modest increase over January, the Associated General Contractors of America (AGC) noted that, excluding single-family home construction, the market “sizzled.”
According to AGC chief economist Ken Simonson, the tepid 0.3% growth “masks a 1.5% jump in nonresidential spending, a 2.7% increase in residential improvements, and no change in new multifamily construction. Those gains outweighed the freeze in new private single-family construction, which tumbled 2.9% for its eleventh straight decrease.
“Compared with February 2006, private nonresidential construction was up 16%, public construction was 10% higher, residential improvements climbed 17%, residential improvements climbed 17% multifamily edged up 2%, but new single-family construction was off 28%,” added Simonson
CMVC’s Brady said that in spite of a modest January increase in construction spending, trucking companies vested in that sector are faring poorer than the rest of the industry due to the collapse of housing starts.
“They’re definitely having a very weak environment compared to the overall freight environment,” Brady said. “[Construction is] a relatively weak market and will be in ‘07 due to residential markets.”
To comment on this article, write to Terrence Nguyen at tnguyen@fleetowner.com
