With job creation and consumer spending taking small steps forward, a formerly white-hot manufacturing sector cooling off, and once meager inventory levels through the supply chain returning to normal, freight tonnage is on track for decelerating growth ahead.
According to January’s Institute for Supply Management’s (ISM) manufacturing report, trucking’s biggest customer— the manufacturing segment— is continuing to show signs of slowing its expansion. There were declines in new orders, backlogs and export indexes and the imports index accelerated.
Manufacturing exports represent a larger stimulus to tonnage than imports, as raw materials have to be shipped domestically to manufacturing plants. However, according to analyst Chris Brady, president of Commercial Motor Vehicle Consulting, the cooling of exports may only be a temporary blip on the radar screen.
“I wouldn’t expect a continual decline in exports,” Brady told Fleet Owner. “The world economy is growing while the decline in the U.S. dollar has increased American producers’ competitiveness. I expect an increase in exports for 2005, but probably at a moderate growth rate.
“And while the dollar is weak, against Asia it hasn’t weakened nearly as much compared to Europe,” Brady noted, commenting on America’s feverish thirst for imported goods. So while European producers may have taken a hit on the strong euro, China remains as competitive as ever, he explained.
Inventories continue to be lean for manufacturers’ customers, the ISM report said, which will continue to drive tonnage. “Inventories are still a bit lean throughout the supply chain, but it’s trending upward,” Brady said. “It appears that inventories are coming closer with an equilibrium with sales. That means the freight stimulus of replenishing stocks may start to decrease through the beginning of ’05.”
“Even though the [manufacturing index] is slightly lower, the month-over-month growth is still quite strong and will provide significant momentum for the remainder of [the first quarter],” said Norbert Ore, chair of ISM’s Manufacturing Business Service Committee. Demand for exports continues to be quite strong.”
Jobs and consumer spending—the pull on the supply chain-- continued to grow in December, if at a modest pace. Excluding a large dividend by Microsoft Corp., which significantly impacted figures, personal income expanded 0.6% or $62.7 billion, according to the Bureau of Economic Analysis. Consumer spending grew 0.8%, or $66.4 billion.
The Bureau of Labor Statistics reported today that the economy added a modest 146,000 nonfarm jobs, while the unemployment rate decreased to 5.2% as fewer people were looking for work in January.
And while there are no immediate indicators of any changes in the growth of consumer spending in the months ahead, Brady does warn that households and businesses will react to steadily increasing interest rates. This would affect rate-sensitive markets, such as houses and autos. “Now that the Fed is increasing rates, households and businesses will adjust, and that takes time,” Brady said.