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Mixed Signals for Freight Outlook

Oct. 18, 2004
Freight tonnage is looking to receive another boost in the coming months, driven by rebounding automobile sales in September

Freight tonnage is looking to receive another boost in the coming months, driven by rebounding automobile sales in September.

Motor vehicle and parts dealers rang in 4.6% more sales last month than in August, the U.S. Census Bureau said. The automobile market has lately endured a roller coaster ride in sales trends, however, as sales dropped 1.4% in August, after jumping 4.3% in July.

Retail and food services sales increased 1.5% to $341.3 billion. Excluding motor vehicles and parts, retail sales rose 0.6%. General merchandise sales increased 1.1%, driven by extended back-to-school sales through a late Labor Day.

Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC), told Fleet Owner that based on stout general merchandise sales, consumers are overcoming the high-energy-prices hurdle. “It appears the growth rate in consumer spending is moderating but it doesn’t appear high energy prices have dampened it yet. The spending was in September for back-to-school since Labor Day fell late this year,” Brady said.

Despite a strong rebound in retail indicators, the entire economic picture is not as rosy. Consumers are continuing to get squeezed, as the unemployment rate remains stagnant and inflation continues its upward trend. Although these indicators appear to justify the stagnant consumer spending growth reported in August, the strong September rebound underscores that the figure remains volatile.

Because of these seemingly conflicting indicators, predicting whether the consumer spending growth is sustainable is a tough call. “That’s the million-dollar question. It appears the economy has enough momentum to moderately expand, even in this environment of high energy prices. This is critical for shipment growth,” says Brady.

Retailers have successfully managed to build up their stocks, noted Brady, describing inventories to be “at a more normal level.” As a result, retailers will begin to moderate their new orders and freight growth will slow down as well, Brady said. “A few months ago, when you buy an item at the store, the retailer might buy two more to replace the item and build up its inventory. Now the retailer might order only one item,” he explained.

The outlook for freight growth has become increasingly more dependent on consumer spending as inventories are no longer lean at the retail level, Brady said. Indicators point to a slowdown in the growth of consumer spending, which would lead to a slowdown freight growth by the first quarter, he added.

Producer prices (wholesaler prices) for finished goods rose a seasonally adjusted 0.1% in September, according to the Bureau of Labor Statistics. The energy price index dropped 0.9% for the month, a trend that’s not likely to stick given the current record-setting trend in crude prices.

The manufacturing sector is giving off some mixed signals. The Federal Reserve last week reported a 0.3% drop in manufacturing output as industrial production increased 0.1%. The decline may be linked with disruptions from the recent series of hurricanes, the Fed said.

About the Author

Terrence Nguyen

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