Monday, July 13, 2015

Mid-Year Review: Where Freight and the Economy Are Headed

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 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.)

1 comment:

  1. Our Business Trends indicator for sales/shipments has been leveling off the last two months off of a record March. Our next report will be out next week and should tell the tale.