Freight projected to flatten as fall approaches Fleet Owner

Freight projected to flatten as fall approaches

Freight volumes for trucking are projected to stay relatively flat heading into fall as variety of data points indicate that business activity may remain muted due to ongoing global and domestic economic uncertainty.

The American Trucking Associations (ATA) reported that its for-hire truck tonnage index remained unchanged in July after increasing 1.1% in June, though July’s reading is 4.1% higher compared to the same month last year, the trade group noted. Year-to-date, tonnage is up 3.7% compared to the same period in 2011.

Still, Bob Costello, ATA’s chief economist, believes July’s reading reflects an economy that has lost “some steam” but hasn’t “stalled” as of yet.

“Certainly there has been some better economic news recently, but I continue to believe we will see some deceleration in tonnage during the second half of the year, if for nothing else but very tough comparisons on a robust August through December period in 2011,” he noted.

Other economic data follows Costello’s line of thinking. S&P Capital IQ’s Global Market Intelligence (GMI) division recently reported that while it may be too early to conclude that the economy has fully emerged from the second quarter "soft patch," its analysis of recent data suggest that economic conditions have not continued to deteriorate further in July and early August.

Moreover, with 476 S&P 500 companies having reported second-quarter earnings results, growth for the quarter currently stands at 0.9%, considerably better than the negative 2% growth expected at the start of second quarter earnings season, GMI noted.

Costello added that he thinks the ongoing slowdown in new factory orders will constrain manufacturing output, which will impact truck freight volumes. Additionally, he is concerned about the recent jump in the total business inventory-to-sales ratio – which combines total manufacturing, wholesale, and retail inventory.

“Unintended gains in inventories will hit trucking negatively as the supply chain works off stocks,” he explained – one reason why Costello is keeping his tonnage outlook for 2012 in the 3% to 3.5% range.

Business owners themselves are becoming more cautious with the approach of fall, with the quarterly Wells Fargo-Gallup Small Business Index survey reported that only 41% of U.S. small-business owners expect to make capital investments over the next 12 months.

For the 57% of small-business owners that do not plan to make capital investments over the next year, the top reason, endorsed by 63% of them, is that they are too concerned about the overall state of the economy to do so.

This was followed by feeling too uncertain about the future of their business (56%), feeling that their business doesn't need capital improvements (54%), and a lack of revenue and profits to make new capital investments (53%). About one in three owners said the needed capital improvements are too expensive or that they are too uncertain about the availability of credit to make such improvements, the Wells Fargo-Gallup poll found.

The factors inhibiting small-business owners as they consider making capital investments over the next 12 months are consistent with the overall decline in owner optimism since April. They also seem consistent with the slowing of the overall U.S. economy as well as declining economic confidence and a worsening unemployment situation, Wells Fargo and Gallup reported.

At the same time, two reasons small-business owners most commonly say would make them more likely to make capital investments – better sales and a more certain operating environment – suggest this situation is unlikely to change in the near future, the poll’s researchers discerned. Given the high unemployment rate and increasing fuel prices, it seems unlikely small-business owners will see an improved sales outlook anytime soon, Wells Fargo and Gallup reported. 

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