There’s been a ton of mixed indicators recently on the imminent direction of the U.S. economy in terms of whether it’ll grow or continue stagnating. Yet most experts now seem to think things will continue to muddle along in positive territory – with some dubbing this the “Great OK” – even if they retain some significant doubts about how sustainable both global and U.S. economic growth will be.
Of course, all of this boils down into fairly simple terms: will freight volumes grow near term and, if so, will capacity remain tight enough to get shippers to pay higher rates?
Let’s look at the freight forecast first. While many think the traditional “peak season” for freight covering Thanksgiving and Christmas is now a thing of the past, Deloitte’s 28th annual survey of holiday spending intentions and trends indicates an uptick in holiday-season spending – with much of it occurring via the Internet, which should boost freight-hauling activity.
The 5,018 consumers polled by Deloitte said they plan to shell out an average of $421 on holiday gifts this year, up from $386 last year. They also expect to buy an average of 12.9 gifts, ending a five-year decline in the number of gifts they plan to purchase, the firm reported.
Another positive sign in holiday shopping, Deloitte found, is an increase in discretionary and non-gift spending with the amount consumers plan to spend on non-gift items for themselves or their families poised to jump 14% from 2012, while spending on home and holiday furnishings should increase 25% from last year.
Additionally, consumers appear more confident in the economy’s prospects, the firm found, with more than half (54%) believe the economy is on the rebound, an increase of 22 percentage points in the past two years.
“The survey reveals a brighter consumer spending outlook than we’ve seen in several years,” noted Alison Paul, vice chairman of Deloitte LLP and the firm’s retail & distribution sector leader.
“Consumers are feeling more generous about gift spending, and we are encouraged by their plans to spend more on going out for celebrations, decorating their homes and treating themselves and their families to ‘early gifts’ while holiday shopping this year,” Paul noted. “The government shutdown and debt crisis had the potential to dampen consumer sentiment; however, the settlement likely averted any significant impact on the holiday season. The timely resolution of those issues may also give consumers an extra confidence boost just as promotions start hitting the stores and the shopping season gets underway.”
Paul also pointed out that Internet has moved into the top spot among holiday shopping destinations for the first time in this survey’s 15 years, bumping discount/value department stores from the No. 1 position. Nearly half (47%) of consumers said they plan to purchase items online, Deloitte’s poll found, followed by 44% at discount/value stores.
Here’s another key tidbit where freight is concerned: The so-called “omni-channel” shopper who favor the Internet and traditional “brick and mortar” stores to do their shopping tends to spend more. Deloitte’s poll found that those who shop a combination of store, Internet and mobile channels plan to spend a total of $1,643 on the holidays; 76% higher than those who shop in the store only.
OK, that’s the retail picture; no let’s look at the industrial side of the freight market, the one that’s been driving much of the volume these past few years.
According to the Third Quarter 2013 Manufacturing Barometer compiled by consulting firm PricewaterhouseCoopers (PwC), optimism among U.S. industrial manufacturers regarding the global economic outlook reached the highest level since the first quarter of 2012.
In short, as the third quarter wrapped up, 40% of respondents expressed optimism regarding the world economy for the next 12 months, up from 31% in the second quarter and 29% from the third quarter of 2012.
Interestingly, the “primary growth driver” for manufacturers remains the U.S. economy, with 60% of those polled expressing optimism about the domestic outlook, and the outlook for the U.S. continues to contrast with the international picture, where optimism regarding actual revenue contributions in the next 12 months remained low at 30%, down two points from the second quarter and off eight points from last year's third quarter.
"The divergence in viewpoints regarding the U.S. and world economic outlooks narrowed somewhat in the third quarter [with] optimism regarding the global economy improved, but uncertainty remained prevalent, marked by persistently low expectations regarding the level of international revenue contributions going forward," noted Bobby Bono, PwC’s U.S. industrial manufacturing leader.
"Despite the uptick in global economic sentiment, the U.S. remains the growth driver in the industrial manufacturing sector, with continued signs of healthy demand, pricing strength, new product investment and hiring,” he added. “Overall top line growth expectations remain moderate and management teams are continuing to take a careful approach to capital allocation and cost management, while preserving liquidity."
Reflecting the healthy level of optimism pertaining to the domestic economy, 82% of U.S. industrial manufacturers surveyed expect positive revenue growth for their own companies in the next 12 months, with only 2% forecasting negative growth. While the projected average revenue growth rate over the next 12 months remained moderate at 4.2%, down from 4.6% in the second quarter and last year's third quarter.
"Management teams are continuing to focus on boosting organic growth, with an emphasis on new product launches and investment in R&D and technology," Bono added. "This is indicative of the mixed global outlook and overall moderate revenue growth expectations.”
Freight experts think such findings add up to a still-sluggish outlook for freight, but one that is at least growing, not receding.
“Peak season data has been mixed, but industrial demand remains firmer than retail,” noted Benjamin Hartford, an analyst with Wall Street firm Robert W. Baird & Co., in a recent freight market update.
“The third quarter retail demand environment was best described as sluggish [but] retail (i.e., truckload and intermodal rail) volume trends were better than those experienced during 2012 [though] remaining modestly below seasonal,” he said. “Anecdotally, truckload trends have strengthened seasonally in October, and carriers are optimistic about fourth quarter volume trends, aided in part by six fewer retail selling days between Thanksgiving and the Christmas holiday.”
Still, Hartford thinks that consumer-related spending will decelerate and remain a headwind to retail-related freight growth. That contradicts Deloitte’s findings, of course, but Hartford also believes underlying freight trends are “stable” and said an “opportunity” exists through the first quarter next year given typical transport stock seasonality.
Then look at the most recent for-hire truck tonnage index reading compiled by the American Trucking Associations (ATA), which increased 1.4% in September, matching August’s gain. Compared with September 2012, the index surged 8.4%, which is the largest year-over-year gain since December 2011, noted the ATA, which added that year-to-date comparisons with the same period in 2012 show the tonnage index is up 5.4%.
“I continue to be pleasantly surprised on the strength of truck tonnage,” noted ATA Chief Economist Bob Costello in a statement. “I attribute a part of tonnage’s robustness to the sectors of the economy that are growing fastest, like housing construction, auto production, and energy output. These industries produce heavier than average freight, which leads to faster growth in tonnage versus a load or shipment measure.”
He added that while tonnage is likely running ahead of overall economic growth, it perhaps means the U.S. economy is stronger than many believe.
“The index has now increased in four of the last five months and the year-over-year growth rate has accelerated,” Costello noted, though the government shutdown may serve as an economic headwind for the fourth quarter. “[Yet] other measures of truck freight volumes, while increasing at a slower pace than tonnage, have also accelerated in recent months.”
Thus if things stay stable, despite being sluggish, the holidays could be start of something decent – if not good – for trucking in terms of freight. Let’s see if that develops.