You can move in on a truckWith a driver who’s named Buck
You can put it on a train
You can fly it on a plane
You can put it on a ship
And hope it will not flip
You can flow it in a pipe
(Well actually you can’t do that because building one more pipeline would harm the environment and eventually kill us all!)
The first estimate of 2011 Q4 GDP came in at 2.8%. Because replenishment of inventories was a large portion of that growth, it is a good time to check in on the freight market.
· The American Trucking Association Tonnage Index increased 6.8% in December. This was the biggest gain in 13 years.
· The Pulse of Commerce Index (based on commercial diesel fuel use) rose 0.2% in December
· FTR (Freight Transportation Research) Truck Loadings Index increased 0.2% in December and was up 4.9% yoy.
What it means: The ATA index number is useless because it is being seasonally adjusted according to historic factors and things are still far from normal. Businesses are still trying to balance their inventories, but things may be getting more stable. Truck freight is growing at a rate of 2.5-3.0% a year and was strong in December.
· Carload freight in December was up 7.3 year-over year. Intermodal increased 9.4%.
· FTR December carload index + 1.0% (2.9% yoy). Intermodal +0.4% (3.7% yoy)
What it means: Carload freight is growing again after stagnating for six months in the middle of the year. It is still almost 11% below the peak year of 2006. Intermodal (mostly imported consumer goods) has almost fully recovered and is very close to 2006 levels.
Import freight at the ports had a strong month in December after being slow the previous six months. Export traffic continued to grow, though at a slower pace than earlier in the year.
What it means: Consumer spending is starting to pull through more imported goods. However, exports slowed some in December and need to continue to grow for manufacturing (and job creation) to improve.
Baltic Dry Index
This index measures the price of moving raw materials by sea by comparing the demand for freight with the supply of shipping capacity. Historically it was a useful indicator for future world economic growth. In recent years it has been much less accurate due to Chinese growth and swings in the supply side.
The index has fallen 43% in the last month. This would indicate the global economy is about to crash. Realistically, it is reflecting a slowdown in the Chinese economy (especially iron ore demand) and a recession in Europe. Economists in the U.S. think these events will restrict domestic economic growth, but not stop it.
· November total inventories rose 0.3%, sales up 0.3%. Wholesale inventories up 0.1%, sales up 0.6%
· ISM (Purchasing Manager’s) Manufacturing Report stated that inventories were decreasing and that customers’ inventories were too low. It also reported that imports and exports are growing and new orders are increasing.
Economists are concerned with the inventory build-up in Q4, 2011. But this increase was due to inventories being too low in Q3. Sales were higher than expected in Q3 which is a good thing. Sales continued to grow in Q4, so businesses added to their inventories. There is no evidence businesses are overstocked. Freight was strong in December so companies are expecting stronger sales in January.
Consumer confidence is increasing as is employment so sales should continue to increase. We are one-third into Q1 and there is no indication yet that the economy is losing any steam. China and Europe are concerns. Iran remains as issue, but the more power it loses in this game, the louder it yells (similar to a 7 year-old on the playground).
My expert panel is predicting GDP growth of 1.9% and 2.1% in Q1 and Q2. I think we can squeeze out an extra half point to 2.4% and 2.6%. I know this is much higher than my forecast in October. However this is when the much respected Economic Research Cycle Institute said we were going into recession. ECRI either was too early on their prediction or else they’ve got some “splainin” to do.
The Model T also improved some in December after being stable for several months.