Freight may be looking up

Freight may be looking up

A mild “bounce” in the American Trucking Associations’ (ATA) For-Hire Truck Tonnage Index is just one indication that the freight market may have indeed reached bottom and is now poised to recover in the second half this year.

A mild “bounce” in the American Trucking Associations’ (ATA) For-Hire Truck Tonnage Index is just one indication that the freight market may have indeed reached bottom and is now poised to recover in the second half this year. Any such recovery, however, is projected to be mild at best.

The ATA’s tonnage index rose 2.1% in July after falling 2.4% in June. Compared with July 2008, tonnage is off 10.4%. That is the narrowest year-over-year gap between 2008 and 2009 volumes since February this year, noted Bob Costello, the group’s chief economist. “It is not unusual for an economic indicator to become volatile before changing direction,” he said.

Though truck tonnage should continue to be choppy in the months ahead, Tavio Headley, staff economist with ATA, told FleetOwner that’s not necessarily a bad thing. “It suggests things have bottomed out” he said. “We’re bouncing around a seven-year low in freight volumes, and you typically see that ‘choppiness’ when you’ve reached bottom.”

Many other economic indicators that impact trucking started turning positive in recent months as well, noted Headley. For example, after falling steadily from a peak in July 2007, The Conference Board’s leading economic index (LEI) for the U.S. has increased sharply in the last four months, reaching 3.0% in July (a 6.2% annual growth rate). Over the last six months, that number is up substantially from negative 2.8% (a negative 5.4% annual growth rate) posted for the previous six months.

“The LEI gauges economic activity three to six months out, and it’s suggesting moderate economic growth for the second half of the year, which is consistent with our view,” Headley said.

Durable goods orders – which include cars, household appliances, and aircraft parts – surged in July at their fastest pace in two years, increasing 4.9%. “[It’s] a signal that capital equipment demand in the U.S. and abroad has turned the corner,” Nigel Gault, chief U.S. economist at IHS Global Insight, told the Wall Street Journal.

New-home sales also increased sharply in July by 9.6% – their fourth straight monthly increase – which is another sign of a recovery taking hold in the housing market. More importantly for trucking, housing construction is on the upswing, with single family home construction up 1.7% in July, delivering the fifth straight month of increased construction in the single-family dwelling segment.

That impacts trucking significantly because home construction materials such as lumber, drywall and roofing are heavier shipments and help boost tonnage levels, said Headley.

On one other positive note, the Institute for Supply Management (ISM) reported in its most recent manufacturing sector survey that new order and production indexes are rising, pushing its purchasing managers index (PMI) up to 48.9% from 44.8% in June. Readings above 50% indicate economic growth while readings below 41% indicate economic contraction, the group noted.

“[The PMI] is still below 50% but it’s trending in the right direction,” said ATA’s Headley. “That increase has also been the highest since August 2008.”

“The decline in manufacturing was slower in July when compared to June, as the more leading components of the PMI — the New Orders and Production Indexes — rose significantly above 50%, thus setting an expectation for future growth in the sector,” said Norbert Ore, chairman of the ISM’s manufacturing business survey committee.

“The Employment and Inventories Indexes are still contracting, but the rate is slowing and they are moving in the right direction,” Ore added. “It is also worth noting that the New Export Orders Index shows growth following nine consecutive months of decline, suggesting that the global economy is recovering. Overall, while it would be difficult to convince many manufacturers that we are on the brink of recovery, the data suggests that we will see growth in the third quarter if the trends continue.”

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