Trucking poised for 4Q downturn

Growth in the manufacturing sector, a barometer of freight volumes in trucking, decelerated in September according to the Institute for Supply Management

Growth in the manufacturing sector, a barometer of freight volumes in trucking, decelerated in September according to the Institute for Supply Management (ISM). ISM cited the slowing housing market as the cause and said an upcoming drop in auto-related production is expected to further dampen the manufacturing sector.

The ISM manufacturing index was 52.9% in September, have registered a 1.6% decline from August. Any reading higher than 50% generally indicates growth in the manufacturing sector.

“The manufacturing sector continues on a trend of slowing growth in September,” stated Norbert J. Ore, chair of the ISM’s manufacturing business survey committee. “While there was little change in new orders and production when compared to August, significant slowing took place in employment and inventories. It’s apparent that manufacturing is losing momentum and feeling the effects of higher interest rates and a weaker housing market.”

The survey said manufacturers’ backlogs in September contracted following eight months of growth. Export growth remained relatively bullish at 55.3%, in spite of a 0.4% slide from August.

“Exports are going to be a key factor for freight in ’07,” said Chris Brady, president of Commercial Motor Vehicle Consulting. “Roughly about 25% of freight volumes are directly or indirectly related to exports. If exports continue to be strong that will cushion the impact of other sectors like housing and autos.”

On the housing front, the seasonally adjusted annualized rate of new residential construction in August dropped 2.3% below the July rate and was 21.9% below that of August 2005.

“At the current moment private and nonresidential construction is strong but residential construction will continue to weaken in 2007,” Brady said. “If you’re in a business related to hauling building materials I’d be cautious in ’07; especially if you’re hauling for the residential market.”

With regard to automobiles, Ford and DaimlerChrysler have recently vowed to slash production to make it more consistent with demand in North America.

See Way Forward fast forwarded

“In the fourth quarter there’s no doubt that auto production will be a real drag on freight volumes,” said Brady. “Any carriers that haul auto parts or semi-finished products related to auto will see weak volumes in the quarter. We’ve seeing Ford, GM and Chrysler all announce scaling back production.”

But consumers are continuing to earn and spend more, if at a decelerating rate. Disposal personal income, or earnings less taxes, grew 0.3% in August. Personal consumption expenditures expanded a modest 0.1%. If a slowing growth trend continues that could slacken capacity in the trucking industry, as consumer spending accounts for about 70% of the U.S. economy.

“Carrier earnings in the third quarter should be decent,” Brady said. “In the fourth quarter it will depend on what your shipper base is. The construction market next year will be a problem and autos in the fourth quarter will definitely be a problem. The economy has definitely slowed down. Now it’s more [a question of] what segments are slowing down faster than others.”

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

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish