There is much discussion and speculation about where the
economy is headed the second half of the year, so it is an appropriate time to
check the freight markets and the leading economic indicators to gain some
insight.
Freight
Markets
FTR (the undisputed experts on freight) says truck
freight (ton-miles, one ton moved one mile) is currently growing slowly and is
forecast to grow 1.6% the rest of 2015.
This is slower growth than in the past several years. Rail freight is actually declining due to
fewer coal and metallic ore shipments.
Factor these out and rail freight is very flat.
Data from Truckstop.com shows that “load availability”
was down 24% from the previous week. This has dropped for four consecutive
weeks and is not a good sign.
Freight
Market Factors
-
Industrial
Production – Recent numbers have been weaker than expected, with a
-1.3% estimate for Q2. FTR forecasts around 2% growth the remainder of the year.
Better, but not that impressive.
-
Construction –
There are signs of life here. Recent
numbers have been positive although commercial construction is growing faster
than residential. However the Building
Permit numbers and the Home Builders Confidence Index are both moving up. There is potential for freight growth in this
sector, but maybe not until 2016.
-
Auto
Sales – The numbers are high, but peaking. There is not much potential for significant
freight growth here.
-
Exports – The
May numbers were not strong. Exports
have been flat for months and are running below last year’s level. The strong U.S. dollar and tepid world demand
are crimping sales. There is potential
for freight growth here, but it’s not likely to happen soon.
So freight is expected to grow faster than the first half
of the year, but still not very good.
There was no “snap back” to compensate for the weak Q1, as I predicted
in this blog in March. Let’s see what some indicators say about the economy is
the second half.
Economic
Factors:
-
General
Economic Indicators – The ECRI Weekly Leading Growth Index went
positive in mid-April and has been inching up ever since. The Conference Board Index of Leading
Economic indicators has been fairly strong the last two months. This means the economy does have some
momentum going into the second half of the year and the risk of recession
(baring a Greek or Chinese upset) in the next 12 months is low.
-
Order
Data – New Order data from ISM and the government are mixed.
ISM shows solid growth, the government data is flat. The ISM data indicates
backlogs are shrinking. I know that
backlogs are shrinking for commercial trucks and trailers after peaking for
this cycle in Q1. Maybe other industries are experiencing this as well.
-
Survey
Data – The Bloomberg Consumer Confidence Index is back to its
March level after recovering from a weak May. Consumers are more hopeful than
confident and therefore still are being cautious about purchases. The NFIB Small Business Optimism has
increased some the last three months.
World business confidence is declining however (Moody’s). Again, there is no sign of retreating but no
big push forward either.
-
Sales
Data – Retail sales are still subdued and imports are not
great either. My index which measures
disposable income spending is actually up 3.7%.
This does contradict my last post that implied that consumers were not
spending their “lower gas price” dividend.
Economists expect retail sales to rebound strong in June with some
saying “lower, stable, gas prices” have finally had an impact. This would indicate better growth prospects
in the second half of the year.
The
Call
It appears the industrial sector is growing slower than
the consumer sector and should continue to do so for a while. It is concerning that freight volumes have
slowed because this is usually a good leading economic indicator. This analysis would indicate moderate growth
for the next few quarters.
This is consistent with the Wall Street Journal June
Economic Survey. The GDP forecasts for
the second half of the year range from 2.2% to 4.0%, with the average being
3.0%. This average sounds reasonable,
but if I had to bet on the outcome, I’m taking the “under”.
This post first appeared on the FTR website. FTR is the leader in analyzing and forecasting the commercial transportation industry. For more information on FTR reports and services, please click here.)
