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GDP foreshadows strong 4Q for trucking

Nov. 7, 2005
Motor carriers are poised to set bullish earnings and revenue marks in the fourth quarter

Motor carriers are poised to set bullish earnings and revenue marks in the fourth quarter. That’s because business inventories shrank in the third quarter, trucking capacity remains tight, and retailers have expectations of solid holiday sales.

According to the third-quarter gross domestic product (GDP) report, farm and nonfarm private inventories declined at a seasonally adjusted, and adjusted for inflation amount of $16.6 billion. This marks the second consecutive quarter of inventory declines.

The overall U.S. economy sustained an annual growth rate of 3.8% in the third quarter. This was driven by a 3.9% annual rate of expansion in consumer spending, 8.9% in capital spending in equipment and software, and 3.2% in government expenditures.

In the second quarter, the economy expanded at an annual rate of 3.3%. This makes the acceleration in the third quarter surprising given the recent energy price spikes as a result of Hurricanes Katrina and Rita.

“The only concern about the fourth quarter is what will be the impact of high energy costs on consumer spending,” Chris Brady, president of Commercial Motor Vehicle Consulting told FleetOwner.

But the same concerns arose last fall when energy prices were also escalating. “Now prices are a lot higher [compared with 2004],” Brady said. “What has been offsetting high energy prices are employment gains which generate personal income. And it appears that consumers are reducing savings to sustain spending. That can’t go on indefinitely.”

Brady explained that meager consumer savings means leaves spending rates are vulnerable to a major falloff if there is an economic disruption. But with more jobs being added to the economy to fuel spending, for the foreseeable future carriers look to be in good shape, he said.

“When someone does buy a commodity, retailers have to reorder and replenish their stock because everything is so lean in the supply chain,” Brady said. “Excluding any shock, I think carriers will do well in the fourth quarter. I do think there will be a slowing of consumer spending but not a decrease.”

In the third quarter, truckload and LTL carriers generally posted earnings ranging from strong to record-setting. Tight freight carrying capacity was key for many carriers to firm up rates and mitigate the negative impact of record-setting diesel prices brought by Hurricanes Katrina and Rita.

For previous FleetOwner coverage on third quarter earnings, go to:

Truckload surprisingly good
LTL earnings stay up
Cold carriers stay hot

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