It’s Something Unpredictable - Even For Me

Another turning point, a fork stuck in the road

Time grabs you by the wrist, directs you where to go
So make the best of this test, and don't ask why
It's not a question, but a lesson learned in time – (Green Day)

My blog, Model T Stock Trends, debuted September 23, 2009 and this is 118^th post.  I started the blog three months after I was downsized and cast into the worst job market of our generation.  The purpose for the blog was to keep my writing and analysis skills sharp while I sought employment and to put these skills on display to potential employers.

I found a job, but the blog was not a factor.  I thought the blog would end at that point, but my readers encouraged me to continue writing, so I did.  I was recruited away for another job within a year. The blog was not a factor again, but I kept writing. And you kept reading. The blog has received over 62,000 total hits, with a monthly high of 3,059 in October 2012.

I have spent the past four years analyzing the economy, forecasting outcomes and writing about it.  And now someone has hired me to do economic analysis, forecasting and to write about it.  I am the new Vice President, Commercial Vehicles at FTR (Freight Transportation Research).  FTR is the leading freight analysis and forecasting firm in the transportation industry.  FTR was named winner of the 2012 Best Overall Forecast by the Chicago Federal Reserve.  It is an honor to be working with an organization of such

prominence.

Due to my new position, I have made the decision to suspend postings of Model T Stock Trends for now.  I will be blogging for FTR and there are some business issues to work out.  I may be able to resume posting at some point down the road.

I will continue to publish my humor blog, “Ake’s Pains”.  If you are on my mailing list and read the Model T Stock Trends but do not read Ake’s Pains, check the e-mail for instructions.

I cannot thank my loyal readers enough.  You kept reading, I kept writing, and as a result something great happened.  You have contributed so much to my success and I appreciate it immensely. Thank you. Thank you. Thank you.

It's something unpredictable, but in the end is right,
I hope you had the time of your life.

We Need This Economy To “Stroke Some 3's”

When we looked at the freight markets last December, I described it as “ugly”.  This ugliness preceded an ugly 1.1% GDP growth in Q1, 2013.  With the economy bobbing between a 1% and 2.5% GDP, it’s time again to check on freight.

Truck Freight

FTR (Freight Transportation Research) Truck Loading Index

August Report: +0.4%, July report +0.3%. August +6.3% year-over-year

Trend: Steady increase

Forecast: Good growth in Q4, slower in Q1, 2014

ATA Trucking Index

August Report: +1.4%, July report -0.6%. Up 6.9% year-over-year

Trend: Increasing. This is the largest year-over-year gain since December 2011

Rail Freight

September Report: Intermodal +4.4% year-over-year (monthly average) Carloads (excluding coal and grain) +4.9%

Trend:  Intermodal is red hot with the monthly average currently the second highest in history. Carloads are showing steady growth.

Forecast: Current trends to continue

Port Freight Activity (West Coast)

FTR Index

August Report: +4.3%, July +2.3%. +3.9% year-over-year

Trend: Inbound freight is increasing.  Outbound freight has struggled most of the year, but has bottomed out and is growing again.

Air Freight

Trend: Flat, but better than in Q1.  Air freight is down 3% year-over-year.

Business Inventories

July Report: +0.4%, +0.1% June.

Trend: July showed the largest increase in inventories in six months. Businesses restocked for anticipated increased business the rest of the year.  Wholesale inventories are flat however.

Forecast:  The Inventories to Sales Ratio is low.  Businesses need more inventory.  Any increase in sales will require more production, more goods and more freight.

What It Means

Do not get too excited about these positive freight reports. Both FTR and ATA say freight is outperforming the economy at this time.  This is because the sectors (automotive, for example) that produce freight are strong right now.

However, freight markets are in much better shape than there were last December.  Inventories are tight and this is creating steady freight demand.  The economy keeps cycling up and down within a tight range.  Every time it appears that a decent recovery is starting, it stalls.  The freight markets indicate that we are in another upswing.

Forecast

My Wall Street Journal Economic Panel (my seven favorite from the monthly survey) forecast a Q1 GDP of 2.7% (with a high of 2.9% and a low of 2.4%).  Based on the positive freight numbers, I believe we can get to 3% growth.  Of course this is assuming the government doesn’t create a crash and the start of the Affordable Care Act does not cause an economic disaster.

In the words of that great economist Dickie V, “We need somebody to stroke the three, baby”.  We need to pass the economic basketball to the greatest 3-point shooter of all-time, Reggie Miller, and let him fire away. 

We need to see "3" from the economy!

If we can get to around 3.2% GDP in Q1, then Q2 becomes critically important.  Every time the economy has bounced up, it has fallen back down.  If we could get consecutive quarters above 3%, then maybe, just maybe, we can call it a recovery.

When Will The Big Dog Take The Lead?

The housing market had been over-stimulated since 1995 and was on fire until the bubble burst in 2007-2008.  Housing was one of the last sectors to crash in the Great Recession, but when it crashed, it crashed hard.   Housing usually leads the recovery out of recessions, but many economists are becoming concerned because growth in the sector appears to be slowing.  So let’s check the numbers:

Housing Starts

August Report: 891,000 (annual rate). +0.9% vs. July, +19.0% vs. August 2012

Trend: The growth rate this year is slower than 2012.  Housing starts flattened out mid-year but now appear to be gaining some momentum.   Single family units are getting stronger, but multi-family units are decreasing.  My economic panel (Wall Street Journal data) forecasted 2013 housing starts at 980,000, so growth has been weaker than expected.

Building Permits

August Report: 918,000 (annual rate) -3.8% vs. July, +11.0% vs. August 2012

Trend: This indicates the new home market is still steady, but not strong.  The build rate may not increase much until 2014.

Home Builder Confidence

September Report: 58 (50 = Neutral) No change vs. 58 in August

Trend:  The index held steady after four consecutive monthly increases.  Builders are cautiously optimistic, but this optimism may be waning.

New Home Sales

August Report: 421,000 (annual rate) +7.9 vs. July, +12.6% vs. August 2012

Trend: Slow, steady, growth, but more measured than 2012.  New homes are not selling fast enough to stimulate the build rate.

New Home Inventory

August Report:  Steady, moderate, growth since mid-2012.  Inventory is still at very low levels.  Inventories will need significant growth to support “normal” sales rates whenever that occurs.

Existing Home Sales

September Report: 5.48 million (annual rate) +1.7% vs. August, +13.2% vs. September 2012

This is the highest volume since early in 2007 indicating strong growth in this sector. Prices are increasing, motivating both buyers and sellers.  Inventory of existing homes is shrinking and this could hamper future sales growth.

Housing Prices

July Case-Shiller Report: +1.8% vs. June.  Up 12.4% over past 12 months.

Trend: Prices have been steadily increasing since January 2012. They are still down 23% from peak.  The forecast is for another 12.4% increase in the next 12 months.

Commercial Construction

Trend: Commercial construction has been weaker in 2013 after displaying solid growth in 2012.  Construction of new retail, office, and hotel buildings should be much higher in the fifth year of an economic recovery.  If you looked at this number alone, you would conclude the economy is still in recession.

What It Is

Housing market growth slowed in the middle of the year after displaying strong growth in 2012.  It appears the sector is performing very similar to many of the industries that took big hits in the Great Recession. There was a strong rebound off the bottom of the curve, but at some point growth levels out and there is slow progress for an extended time.  Because housing was the last sector to crash, it is mirroring the general economy but still lagging it. 

What It Means

Housing is not going to lead us out of this lethargic recovery anytime soon.  However I don’t expect housing growth to stay this weak for much longer. New home sales are strong, selling prices are increasing and new home inventories are low.  There is still slack in the system (foreclosures, etc.). At some point the slack will be gone and demand will increase and stronger growth will return.  2014 should be a much better year for housing.

What Now?  

That the housing market is still lagging, instead of leading, the general economy is evidence that things are still messed up.  Our economy is a jumbled, malfunctioning, mess. Hopefully at some point the economy resets itself and a real recovery can begin.  Unfortunately my panel of economic

We need the Big Dog running!

experts from the Wall Street Journal is predicting less that average growth for the next four quarters: Q3 = 1.9%, Q4 = 2.5%, Q1 (2014) = 2.7%, Q2 = 2.6%.  We desperately need the “Big Dog” of housing to get up and lead the way, because that is when our economy runs the best.