Freight rebound uncertain for 2Q

The pace of U.S. economic growth slowed to a crawl during the first quarter. GDP increased only 1.3%, its slowest performance in over four years, as the housing sector continued its downward spiral

The pace of U.S. economic growth slowed to a crawl during the first quarter. GDP increased only 1.3%, its slowest performance in over four years, as the housing sector continued its downward spiral. The rate of GDP growth was even worse than expected, as exports declined and businesses showed reluctance in capital expenditures.

Consumer spending, which accounts for over 70% of the total U.S. economy, continued to show solid growth at a seasonally adjusted annual rate of 3.8%. The solid retail sales turnout, in spite of a down residential real estate market, gave economists reason to be optimistic about the next quarter.

In other negative news, exports slid 1.2%, marking the first decline since 2Q 2003.

“Exports are big for trucking because roughly 25% of industrial production is directly or indirectly related to exports,” Chris Brady, president of Commercial Motor Vehicle Consulting, told FleetOwner. Finished goods exporters rely on domestic suppliers, which drive line haul traffic, Brady explained. He expects exports to rebound in the second quarter, due to a healthy global economy and a depreciated dollar.

Business investment in equipment and software rebounded a scant 1.9%, after shrinking 4.8% in 4Q 2006. This was surprising because businesses generally logged healthy profits in the first quarter. Brady expects better capital expenditure growth in the second quarter.

The good news is that the inventory correction, which trucking experts said stalled truck traffic in the fourth quarter, appears to be winding down. Evidence of the correction can be seen in the falloff of seasonally adjusted annual rates of nonfarm inventory investments: $53.3 billion in 3Q 2006, $20 billion in 4Q 2006, and $11.3 billion in 1Q 2007. In general, for-hire trucking companies reported that 1Q freight conditions hit bottom in January and became profitable in March, signaling that the correction may be nearly over.

The surprising weakness in exports and business investments are the new kickers for freight conditions in the second quarter. “A rebound in the freight environment requires a rebound in exports and for business investment spending to improve. If that’s not the case, those factors will definitely be a drag in the upturn in freight,” said Brady.

Bob Costello, chief economist for the American Trucking Assns., hinted that there may be some choppiness in tonnage during the second quarter. “Many motor carriers have been telling us anecdotally that April has been filled with starts and stops,” he said.

To comment on this article, write to Terrence Nguyen at [email protected]

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