Fleetowner 1446 Truck

Trucking catches another tailwind

June 1, 2006
Continued expansion in manufacturing, slimming inventories across the supply chain, and accelerated spending by both consumers and businesses is crunching trucking capacity in the second quarter

Continued expansion in manufacturing, slimming inventories across the supply chain, and accelerated spending by both consumers and businesses is crunching trucking capacity in the second quarter.

The manufacturing sector expanded at a slower pace in May compared with April, the Institute for Supply Management (ISM) reported today. What’s significant for trucking is that new orders expanded at a slower pace, while inventories for both manufacturers and their customers contracted.

The ISM index for the sector on May dropped 2.9% to 54.4% compared with April. Any reading above 50% indicates growth in the index.

New orders slowed to 53.7% after a 3.9% fall since April. Delivery times were slower (at 57.6%, with readings above 50% indicating more transit time) in May than April, a possible indication of trucking and transportation network capacity were stretched thinner.

Low inventories will continue to be a boon for trucking as manufacturer inventories contracted even as manufacturing customers demanded more stock in May than April.

However, inflation driven by spikes in energy costs remained a major concern to the sector, which will likely continue to drive up equipment costs in the foreseeable future as manufacturers get squeezed on margins. In separate report released by the Bureau of Labor Statistics, inflation for producers of finished goods jumped 0.9% in April—the largest monthly increases since at least Jan. 2005.

For the same month, inflation for consumers increased at a brisk 0.6% at a strong 4.1% annual rate based on the three months ended April.

Yet consumer spending, which accounts for roughly 70% of the total U.S. economy, expanded 0.6% in April—a faster pace than a 0.4% increase in after-tax personal income, the Bureau of Economic Analysis reported last week.

U.S. gross domestic product (GDP), the broadest measurement of economic growth, accelerated to 5.3%, compared with a 3.5% expansion for all of 2005. The wind filling the GDP’s sails included the largest consumer spending growth rate (5.2%) seen in 10 quarters and the biggest jump in capital expenditures (13.8%) in six quarters.

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