Trucking Forecast: Let the Good Times ‘Lag’

According to the U.S. Census Bureau’s durable goods report released today, manufacturers’ backlogs grew for the 12th month within the last 13 months, while new orders declined.

Unfilled orders increased 0.3% to $535.5 billion, allowing the manufacturing sector some slack from July’s steep 1.2% increase. Backlogs of transportation equipment manufacturers grew particularly well, up 0.3% to $260.5 billion.

New orders fell 0.5% to $195.4 billion after a brisk 1.8% boost in July. Lagging equipment sales within the commercial airline industry appear to have taken the largest toll, as transportation equipment posted the largest decline— down 6.8% to $55.4 billion. Excluding transportation, new orders increased 2.3%.

Despite the dip in new orders, Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC) told Fleet Owner that new orders as a whole were strong. “If you take out the aerospace orders, manufacturing is up significantly. It’s pointing that the increased output is really broad-based.”

Inventories increased for nine consecutive months, up 0.6% in August to $276.5 billion. Despite this, inventories remain lean across factories and retailers, Brady said.

As a result, Brady pointed to a “lag” in the trucking industry’s currently bright freight forecast relative to an easing national economy. “What usually happens is when inventory is at normal levels, then there is a falloff in consumer spending and inventory gets bloated rather quickly,” he said. “However, right now wholesalers and retailers can afford to build up inventory a bit without being excessive.”

Meanwhile the Federal Reserve raised short-term interest rates this week by another quarter of a point to 1.75%. “The Committee believes that…the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity,” the Fed stated.

CMVC’s Brady said that the rising rates have not yet been reflected in long-term rates. In fact, interest rates in 10-year, and 30-year loans have dipped compared to recent months. “It (the Fed rate hike) wouldn’t affect business spending—right now they’re actually decreased. Long term interest rates have fallen— housing is more affordable today than it was in June.”

The Fed indicated that although high energy prices have been a drag on the economy, the economy continued to modestly generate jobs while it kept inflation in check. The latest data on housing starts has its share of ups and downs. In a separate report, the U.S. Census Bureau said in August building permits for privately owned housing units dropped 5.5% to a seasonally adjusted annual rate of 1,952,000.

Housing starts increased 0.6% to a seasonally adjusted annual rate of 2 million. Although this may seem like good news, the rate of starts may have actually decreased due to a large 6.1% margin of error.

Brady said residential construction data would continue to be volatile because they are affected by the weather— especially given the recent string of hurricanes that battered Florida and the Gulf Coast. However, according to the past six months of data, housing has been trending upward. “With the rebuilding after the hurricanes, that will provide added stimulus,” he said.

This is good news because residential construction is a huge mover of the trucking industry, Brady explained. Residential construction requires the movement of durable goods and building materials. “It doesn’t affect just the linehaul truckers as they move materials in and out of the factory, but the local and regional segments as well where materials goes from the lumber yards to the home construction site…houses consume a ton of material,” he said.

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