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February job growth bodes well for trucking

March 4, 2005
Jobs, manufacturing brighten freight tonnage forecast

Two economic indicators have strengthened the outlook for tonnage: the manufacturing sector, trucking’s largest customer, has continued to expand; and there has been an increase in nonfarm employment.

According to the Institute for Supply Management, manufacturing continued its upward trend in February, if at a slower rate than January.

However, manufacturers’ and customers’ inventories shrank that month— which indicates that a lean supply chain will continue to drive up tonnage. “The recent trend of inventory growth reversed direction during February; this reduces possible concerns about involuntary inventory build,” said Norbert J. Ore, chair of ISM Manufacturing Business Survey Committee.

“While the overall rate of [manufacturing] growth is slowing, the overall picture is improving as price increases and shortages are becoming less of a problem,” Ore continued.

Indeed, rising prices have dogged manufacturers, with ISM reporting increases for 36 consecutive months. This shrinks profit margins, which may result in producers raising prices, said analyst Chris Brady, president of Commercial Motor Vehicle Consulting.

“A squeeze in manufacturers’ profit margins would likely prompt cutbacks on investments,” Brady told Fleet Owner, noting that during 2004 businesses posted double-digit increases on capital spending. “Investment has had a lot of momentum, however. So ultimately, if they pass the prices down to consumers it slows down real consumer spending.” This, in turn, would hurt tonnage growth.

In 2004, business expenditures accounted for just below one-tenth of the total U.S. economy, while consumer spending made up three-fourths. There were mixed signals for reports on consumers—who have the large impact on the economy.

The good news is that 262,000 nonfarm payroll jobs were added in February, the Bureau of Labor Statistics said.

“[Job growth is] a lot stronger than what we’ve seen over the last several month,” noted Brady. In recent months nonfarm job growth has hovered between 100,000 and 125,000, which is considered sluggish. “It’s only one month but if we get a few months like that it bodes well for tonnage. It will stimulate consumer spending, which in turn will drive freight growth.”

However, consumer spending stagnated in January, following a strong 0.8% increase in December.

But overall, with trucking capacity remaining tight, even a modest jump in the manufacturing sector and consumer spending will spur demand.

“There’s enough momentum through the first half of the year to keep freight growth strong,” said Brady. “That’s good because carriers can then implement higher rates.”

About the Author

Terrence Nguyen

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