"While the economy in 2009 was the worst our company has experienced since the Great Depression, we continue to see signs of economic improvement, particularly in China and most developing countries. We are also seeing signs of improvement in North America, Europe and Japan, but these economies remain weak and have not rebounded as quickly as developing countries.” –Jim Owens’s chairman and CEO
The road ahead – economically speaking – remains very troubled to say the least for truckers, if not for everyone else in the good old U.S. of A. Still, a mix of good and bad spots is always better than a whole slate of rotten news, to my way of thinking, and for some of the companies that not only use trucking services but also provide equipment to this industry things seem to be improving out there.
Jim Owens, Caterpillar’s chairman and CEO, recently laid out his company’s views on where the economy – both for the U.S. and the world as a whole – seems to be heading. Of course, his crystal ball – a conglomeration of data points and figures compiled by Cat’s staff of top thinkers – may be just as cloudy as anyone else’s, but at least it gives us a starting point for mapping out the economic road before the trucking industry.
"We expect 2010 will be a better year than 2009,” Owens said during Caterpillar’s fourth quarter and year-end earnings conference call. He said the company expects 2010 sales and revenues to be up 10% to 25% from 2009, with profit expected to be about $2.50 per share – the midpoint of the sales and revenues range.
“We’re encouraged by signs of improving demand. Dealer sales to end users are up, order rates are up, dealer inventories came down in 2009, and we're seeing stronger service parts sales," Owens noted. “As a result, we are focused on increasing production levels in our plants and with our suppliers. Although we expect efficiency improvements in 2010, higher production will require selective increases in employment; we've already recalled more than 500 previously laid-off production employees.”
Yet it’s not coming up all roses, either. Owens noted that housing starts are projected to reach about one million units in 2010, up from 554,000 units in 2009. Yet this increase, though large, would make 2010 the third-lowest year for housing starts since 1945 – only 2009 and 2008 would be lower.
“Historically, housing starts have been volatile; for example, housing starts rebounded from 1.1 million in 1982 to 1.7 million in 1983, a bigger unit increase than we project in 2010. But builders have completed fewer new single-family homes than they have sold since August 2006, and the inventory of unsold new homes is the lowest since April 1971,” he said.
“Single-family homes under construction, as well as the total for all housing units, are at a record low. The severe recession caused household formations to slow sharply the past two years to about half the normal rate,” Owens added.
Still, though, the aggregate economic data is looking much, much better – not a salve to those unemployed, I am sure. But the advance estimate of real gross domestic product (GDP) growth for the fourth quarter last year reached a 5.7% annual rate, the second consecutive GDP advance and the strongest increase since the third quarter of 2003, so perhaps this is the start of better days.
“The latest data is starting to turn in a decidedly positive direction; GDP numbers are the best in over a year and a half, suggesting that the recession is in clear retreat,” said Chris Kuehl, economist for the National Association of Credit Management (NACM).The bulk of this growth is attributed to manufacturers starting to replenish inventories, mostly since the beginning of December, he noted.
“The jump in manufacturing was stark and unexpected and, since the decline registered in the last iteration of the index, there has been a major leap in some critical areas,” he added. “The combined CMI [credit managers’ index] saw a jump from 52.9 to 55.1, which is impressive enough, but the real movement came from the manufacturing side.”
Reinforcing the message coming from the economy as a whole, the manufacturing sector jumped from 52.1 to 55.1, reversing the trend from the December index when the sector stagnated and slipped in terms of positive factors, Kuehl noted.
“There was an improved atmosphere in both manufacturing and service sectors resulting with the most activity in the combined index’s favorable factors, specifically sales and new credit applications,” he pointed out. “Sales in the combined index jumped from 56.7 to 60.7, marking the first time this figure has been above 60 in 18 months. There was also progress in new credit applications—a jump from 54.2 to 57—signaling movement in the credit sector despite ongoing issues in the financial community.”
The same pattern can be seen in amount of credit extended, now standing at 58.8 after sitting in the 40s just five months ago, Kuehl said.
“The past pattern in the index suggests that this is developing into a classic recession exit,” he added. “The deterioration of inventory and the dramatic reduction in capacity utilization meant that any spark of demand would propel business out of this predicament and, as in past recessions, the months following the end of these strategies would show substantial growth. The trillion-dollar question is whether this growth surge can be maintained throughout the rest of the year.”
Thus far, these are the highest numbers seen in the index since February 2009 when the initial impetus of the recession was broken. Since then, growth has been even, but not dramatic, and Kuehl warned that trend of slow growth is likely to return, but he said the suggestion from this month’s data is that there will be pretty substantial gains for the bulk of the first quarter.
Yet truckers aren’t buying into the good news yet – and neither are consumers. According to CK Commercial Vehicle Research’s first quarter 2010 fleet sentiment report (FSR), its Equipment Buying Index fell 21% from the fourth quarter last year to a reading of 54.5 – reflecting a major reluctance on the part of for-hire, private, and government fleet buyers to place orders for power units or for trailers.
U.S. consumer confidence has cooled this month as well as worries over every facet of their financial situation mounted, according to the most recent results of the Royal Bank of Canada’s (RBC) Consumer Attitudes and Spending by Household or “CASH” Index.
Economic attitudes soured across the board, with consumers viewing the current economy negatively and displaying increased pessimism about the future – resulting in an RBC Index for February 2010 of 39.4, down 18.9 points from January's 58.3 reading.
“Although numerous economic indicators are trending in a favorable direction, it's evident that 'less-bad' is just not good enough for U.S. consumers,” said RBC Capital Markets U.S. economist Tom Porcelli. “This month's reading suggests that consumers continue to feel financial pressure from recent volatility in stocks and a soft job market.”
Not pretty, but then again, not surprising: things are still bad, albeit larger economic improvements, so John Q. Public is still keeping the hatches down and locked tight. Not too much different from truckers, I must say, that must continue to long slog forward towards better days.