Though overall economic growth in the U.S. continues to slow, output from the manufacturing sector is projected to keep steadily growing for the next 12 months, producing steady freight volumes for truckers. Economists are predicting U.S. gross domestic product (GDP) growth to only reach 1.8% in the second quarter, down from the first quarter’s anemic 1.9% GDP figure, but as long as manufacturing continues to hum along, carriers could see growth.
“The manufacturing sector has steadily increased its activity over the past year and retains a steady outlook for growth. For truckers, that means they will still see a reasonable level of shipment demand from manufacturing, with that level increasing,” Barry Misthal, U.S. industrial manufacturing leader for global consulting firm PricewaterhouseCoopers (PwC), told Fleet Owner.
Misthal’s confidence stems from the latest findings within the PwC US Manufacturing Barometer, a quarterly survey based on interviews with 60 senior executives of large multinational U.S. industrial manufacturing companies.
Looking at the next 12 months, 90% of those surveyed expect positive revenue growth for their own companies, up a point compared to the first quarter of this year and 17 points higher than the second quarter of 2010. Another 28% forecast double-digit growth while 62% forecast single-digit growth, compared to 33% and 56%, respectively, in the first quarter this year.
Gross margins for the second quarter remained positive, as well, moving higher for 32% of respondents and lower for 20%, for a net plus 12%, which is well above the first quarter’s plus 8% level, Misthal said.
Additionally, manufacturing growth estimates for 2011 rose significantly to 5.4% in the second quarter from 3.9% in the first quarter this year, with 87% of those surveyed expecting positive industry growth for 2011, compared to 79% in the first quarter and 65% in the second quarter last year.
“While several headwinds are expected to grow over the next 12 months, especially the impact of higher oil and energy prices, U.S. industrial manufacturers aren’t as concerned about demand over the next 12 months as in past quarters,” said Misthal. “Furthermore, they are planning major new investments to introduce new products and services, expand their geographic reach and undertake business acquisitions to bolster growth.”
He added that certain segments of the industrial manufacturing sector – particularly aerospace, mining and drilling, and machinery – are performing far better than others, especially those companies that produce consumer goods.
“Overall, more sectors within manufacturing are doing better than not, and this translates into potentially more diverse and fuller loads for trucking fleets,” Misthal said.
This positive manufacturing outlook is what many trucking economists are counting on to bolster the industry through the second half of 2011.
“After growing 5.5% in the first half of the year from the same period last year, the strength of truck tonnage in the second half will depend greatly on what manufacturing output does,” noted Bob Costello, chief economist for the trade group American Trucking Assns. “If manufacturing continues to grow stronger than U.S. GDP, I fully expect truck freight to do the same.”
Yet even consumer goods-focused manufacturers are finding some data metrics to cheer them up. For example, the Conference Board’s Consumer Confidence Index, which had declined in June, improved slightly in July, now standing at 59.5, up from 57.6 in June.
The short-term outlook among consumers also improved moderately in July, with the proportion of consumers expecting business conditions to improve over the next six months increasing to 17.7% from 16.5%. However, those anticipating business conditions will worsen also increased, to 15.2% from 14.9%, stressed Lynn Franco, director of the Conference Board’s consumer research center.
“Consumer confidence posted a modest gain in July, the result of an improvement in consumers’ short-term outlook,” she added. “[Yet] consumer appraisal of current business and employment conditions was less favorable as concerns about the labor market continue to weigh on consumers’ attitudes. Overall, consumers remain apprehensive about the future, but some of the concern expressed last month has abated.”
Yet PwC’s Misthal noted that, for trucking firms, the positive 12-month outlook by major manufacturing companies is a critical metric in terms of future freight volumes.
“What we’re seeing is manufacturing staying on a steady improvement track,” he explained. “Past cost management initiatives and investment strategies are really now coming into play. The only disappointment is that jobs in this sector are not coming back – that’s the only sore point in our survey.”