Recent economic reports point to a rebound in consumer spending, double-digit growth in capital investments, and a buzzing manufacturing sector. That means the freight outlook continues to be decidedly bullish through the beginning of ’05.
Despite some indications of a summer slowdown in the economy, an advance estimate of gross domestic product (GDP)— the most comprehensive measure of the U.S. economy— says that the economy expanded at a faster rate in the third quarter than the second. GDP advanced at an annual rate of 3.7% in the third quarter, compared to a 3.3 increase posted in the previous quarter.
The increase was driven by consumer spending, capital spending, exports, government spending, and residential fixed investments, the Bureau of Economic Analysis (BEA) said.
Consumer spending growth accelerated almost threefold to 4.6%. Business spending has sustained its robust growth, increasing 14.9% compared with a 14.2% increase posted in the second quarter.
Durable goods (products that last several years) purchases boomed, up 16.8% compared with a 0.3% decline posted in the second quarter. Nondurable goods purchase growth was also robust, up 3.9% compared with a 0.1% increase in the previous quarter.
Another report released by BEA further underscored that consumers haven’t folded their wallets. Disposable personal income (national consumer income less taxes) expanded a modest 0.1%, or $9.0 billion. Consumer spending, however, increased at a more robust 0.6%, or $49.8 billion, compared with a 0.1% decline in August.
It is yet to be seen if consumer spending growth is sustainable, especially as the all-important holiday shopping season approaches. The unemployment rate has stagnated since the summer, which may eventually dampen spending if the trend continues.
Manufacturing Still Growing
Meanwhile the manufacturing sector— which comprises trucking’s most important customers— is posting overall growth, albeit at a slower rate than during the summer.
“We are seeing manufacturing slow down, but we’re not overly concerned,” said Tavio Headley, American Trucking Associations’ economist. “We haven’t seen it (the manufacturing sector) contracting. And since manufacturing is basically [trucking’s] number-one customer we are confident tonnage will follow suit,”
New orders for manufactured goods have declined 0.4% by $1.3 billion in September, the Dept. of Commerce said, following a 0.3% decrease in August. Shipments dropped 1.1% ($4.2 billion), reversing a 0.9% August increase.
The decline in new orders hasn’t stopped backlogs from growing, however, as it posted a 0.8% ($4.0 billion) increase. This ensures the manufacturing sector— and trucking— will be busy for the foreseeable future, Headley said.
A separate report released by the Institute for Supply Management appears to confirm indicators of slowing manufacturing growth as the Purchasing Manufacturers’ Index (PMI) declined 1.7 points to 56.8. An index over 50 indicates growth.
“Strong growth continues in this sector, but at a slower rate than in September. New orders and production remain strong, and employment continues to expand. However, energy prices and commodity price inflation are major concerns for manufacturing buyers,” said Norbert J. Ore, chair of the Institute for Supply Management Manufacturing Business Survey Committee.
Productivity in the manufacturing sector continues to be robust, with increases in productivity and output rising by 4.3% and 4.0%, respectively, in the third quarter. In spite of output gains, working hours actually declined 0.3%, indicating the industry is leaner and meaner than ever.
“Our outlook remains bullish,” said ATA’s Headley. “We expect tonnage to grow over 6% for the year compared to last year. On a monthly basis, our seasonally adjusted index saw a 0.6% increase in September and it’d be larger if not for the [recent] hurricanes in Florida. On a year-over-year basis, we saw tonnage grow 6%.”