There should be opportunities aplenty for motor carriers this year given the rosy outlook afforded by the nonprofit Institute for Supply Management (ISM), the largest association of purchasing and supply management executives in the world. ISM’s latest “Semiannual Economic Forecast” strongly indicates that both the manufacturing and non-manufacturing segments of the economy will keep the recovery going by continuing to grow this year.
Especially cheering for carriers should be ISM’s finding that “the manufacturing sector continues to outpace the non-manufacturing sector and has greater expectations for growth in terms of revenue.”
ISM said its forecast “projects optimism” about the economy. “The manufacturing sector, overall, is positive about prospects in 2011 with revenues expected to increase in 16 of 18 industries, while the non-manufacturing sector appears slightly less positive about the year ahead, with 12 of 18 industries expecting higher revenues.”
A key finding for fleet owners to keep in mind is that ISM has reported “Business investment, a major driver in the U.S. economy, will increase substantially in the manufacturing sector, while investment in the non-manufacturing sector will increase at a lower level.”
Indeed, per the study, capital expenditures by the manufacturing segment are expected to rise by 14.5%. On the non-manufacturing side, capital expenditures are pegged at “growing moderately,” by 3.7%.
“Manufacturing purchasing and supply executives have expectations for continued growth and are optimistic about their organizations' prospects as they consider the first half of 2011, and they are even more positive about the second half," said Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee.
While 2010 was a “year of recovery” in manufacturing, “our forecast sees improvements in both investment and employment in 2011,” continued Ore. “Respondents expect cost pressures in 2011 to be somewhat greater than in 2010,” adding that manufacturing growth is now in its 16th consecutive month as measured by ISM.
“Non-manufacturing supply managers… are optimistic about continued growth in the first half of 2011 compared to the second half of 2010,” advised Anthony S. Nieves, chair of the ISM Non-Manufacturing Business Survey Committee. “And they have a higher level of optimism about the next 12 months” than they had in December 2009 for 2010.
“They forecast that their capacity to produce products and provide services will rise by 2% during 2011, and capital expenditures will increase by 3.7% from the 2010 level,” Nieves added. “Non-manufacturers also predict that their employment will increase by 0.3% during 2011.”
Ore noted that manufacturing purchasing and supply executives are “more optimistic about the second half of 2011 compared to the first half of the year.” And Nieves said respondents on the non-manufacturing side “feel more optimistic than they do for the first half of the year compared to the last half of 2010.”
Freight trends appear consistent with ISM’s optimistic outlook on the year ahead. For example, the most recent Freight Flow report by Jon Langenfeld, senior transportation analyst with investment firm Robert W. Baird & Co., showed that Baird’s domestic freight index topped 5.9% year-over-year in October. That compares very favorably to 4.3% for September and the 4.8% registered for the third quarter of 2010 vs. Q3 ’09.
“Looking into 2011, we expect more modest overall demand trends consistent with expectations for low-single-digit GDP growth,” Langenfeld noted, “but expect industrial-related end markets to outperform retail.”
How individual carriers will fare in 2011 will “come down to what products they haul and where they fit into the supply chain,” Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC) told FleetOwner. “Fleets hauling for retailers can expect sluggish to moderate growth due to consumer spending that’s still 20% below peak. And it will take moderate growth in private sector employment before there is a moderate acceleration in consumer spending.
“The strongest freight growth will be in export-related,” he continued. “Capital expenditures on factory equipment etc. by manufacturers will grow faster [than consumer spending] because businesses balance sheets are in far better shape than those of American households.”
Brady stressed that without consumers fully in the game, “this will not be a broad-based recovery. The economy, though, will grow in 2011. But at a sluggish to moderate pace and truck freight will mirror that performance except in certain more lucrative segments [such as related to export goods production].”