Despite this week’s bad news about the economy, motor carriers should see “some increase in shipment volumes” as the second half of the year gets under way, says trucking analyst Chris Brady, president of Manhasset, NY-based Commercial Motor Vehicle Consulting.
According to the Commerce Dept., orders to U.S. factories in June dropped 2.4% to $334.55-billion from May, indicating the manufacturing segment remains sluggish. That slippage effectively wiped out the 2.2% increase recorded in May. And the National Association of Purchasing Management (NAPM) has reported that economic activity in the manufacturing sector slipped for the 12th month in a row in June while the overall economy grew only modestly.
"The overall picture is one of continued decline in manufacturing activity during the month of July," said Norbert J. Ore, chair of NAPM’s manufacturing survey committee and Georgia Pacific’s group director—strategic sourcing & procurement. "The manufacturing sector appears to continue to lack drivers that will stimulate recovery. The rate of decline accelerated during the month as new orders softened somewhat from June and inventory liquidation accelerated.”
However, according to Brady, that “drawing down” of inventory is a good sign. “What we will see in the second half is an improvement in shipments, although that will be up from very depressed levels,” he told FLEET OWNER.
Brady said the economy has experienced an “inventory correction” that was touched off in January by weak year-end holiday sales. “Manufacturing did not adjust right away—it takes time. So, what we have seen is a decline in industrial production through June that resulted from making an adjustment for excess inventory. But that trend has bottomed out.”
According to Brady, if the bottom has indeed been reached, actual purchases will now start driving orders, which will in turn stimulate freight shipments. “But the upturn will be very slow,” he cautioned. “It will be weakest in investment spending by business on equipment, including computers and machine tools.”
The “brightest spots” will be in consumer goods, shipments of which Brady projects will increase at a “moderate rate” compared to those of capital goods. And because spending on housing starts and public-works infrastructure has remained strong, he said demand for building materials will remain “relatively stable at their current high level.”