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.