Tonnage riding on holiday freight

Tonnage riding on holiday freight

Holiday sales still key to tonnage forecast

The most recent economic reports indicate that employment, consumer spending, and the manufacturing sectors continued to expand in the final months of 2004. Growth for producers accelerated in the final leg of 2004, but anecdotal reports from retailers say holiday sales were generally in-line with to slightly below expectations.

“There have been many accounts from retailers on whether retail sales met expectations and that’s really the key to the tonnage forecast,” analyst Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC), told Fleet Owner. “If retail sales were above plan then that means distribution centers are real lean.

“However if retail sales were below expectations, then distribution centers are too full,” Brady explained. “When that’s the case, retailers work it off in two ways: either through sales (discounts), or being conservative in reordering. And (when the latter occurs), that’s when you get freight disruptions.”

Though retailers have given a mish-mash of sales reports, taken on a whole, it appears that 2004’s holiday shopping season was neither blockbuster nor bust, Brady noted. “It was a decent year,” Brady said, adding that it’ll be another month before definitive national retail sales data is released. “There doesn’t appear to be a danger of inventory overhang— a situation when sales are below plan and retailers have a ton of inventory in distribution centers.”

Jobs, spending continued to sustain tonnage

Consumers, the backbone of the economy, received a boost over the last couple of months leading up to the holidays.

Today the Bureau of Labor Statistics (BLS) said nonfarm payroll expanded by 157,000 in December, reflecting strong growth in the service sector as retailers posted “help wanted” signs for the holidays. The unemployment rate held at 5.4%, however.

In a separate report, the Bureau of Economic Analysis (BEA) said disposable personal income, the total after-tax income of all American workers, increased 0.3% in November, or $26.5 billion. This indicates that the economy is adding more jobs. Personal consumption expenditures, or consumer spending, increased 0.2%, or $13.5 billion.

New residential home sales took a seasonally adjusted 12% dive in November, according to the Census Bureau. Home sales are volatile on a month-to-month basis, and the estimate is subject to a 9.9% margin of error.

Manufacturing growth heated up

The manufacturing sector had also been busy through the holidays, ensuring tonnage growth through the first quarter of the New Year.

“On the manufacturing side, acceleration was expected because inventories were lean and they had to replenish stocks to meet their sales volumes,” Brady said. “The lower dollar may also be accelerating export volumes, although it’s too early to tell.”

In November new orders jumped a solid 1.2%, or $4.5 billion to $377.4 billion, the Census Bureau said. Of the new orders, durable goods increased 1.4% to $198.2 billion. The increase was largely driven by a jump in demand for nondefense aircraft and parts. Orders for nondurable goods rose at a more modest 1%, or $1.8 billion to $179.2 billion.

Demand for goods put manufacturers even further behind in their backlogs in November, as unfilled orders increased 1.1% to $548.8 billion. This edged up the backlogs-to-shipments ratio to 4.02, up from 3.95 in October.

Manufacturers’ inventories grew 0.7% in November, or $3.3 billion to $469.7 billion. The expansion of stocks kept in tandem with growth in shipments, as the inventories-to-shipments ratio remained unchanged at 1.24.

The Institute for Supply Management (ISM) also released an encouraging report that indicates the manufacturing sector’s expansion is accelerating. For December, ISM said PMI (Purchasing Managers’ Index) increased 0.8% to 58.6% over November. Any figure over 50% indicates growth in the PMI. This is driven by an increase in new orders, ISM noted.

“December’s PMI…is very encouraging as growth has accelerated for the second consecutive month,” said Norbert J. Ore, chair of ISM. “This completes a strong year for manufacturing based on the ISM data, as the overall index averaged above 60% for 2004.”

Forecast still looking up

With marked growth in the consumer and manufacturing segments of the economy, and holiday shopping appearing to be either consistent with or falling slightly short of retailer’s expectations, tonnage is set to grow, if at a decelerating rate, said Brady.

Additionally, recent inflationary pressures spurred on by record energy prices appear to have plateaued in October, and have since dropped slightly.

“Right now energy prices are below the peak, but we’re still above year-ago levels,” Brady said. “I still believe the effect of higher energy prices is still working its way through the economy. For example, it takes time for people to purchase items such as tires (which are impacted by energy costs). The only factor that is instantaneous is pump prices. Right now I think we’re seeing that inflation is increasing but it is no longer viewed as worrisome.”

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