Manufacturing Continues to Grow

Manufacturing Continues to Grow

Manufacturing up, but holiday shopping will determine 2005 tonnage

The latest round of economic data suggests that inflationary pressures continued to squeeze producers in November while manufacturers saw an upward revision on an already-strong productivity gain in the third quarter.

Today the Bureau of Labor Statistics (BLS) said inflation for producers increased by 0.5% in November, much lower than October’s 1.7% gain. Inflation is largely affected by trends in energy costs, as crude oil prices shot up to record highs in October, which led to steep inflation in the index, while cooling crude prices in November slowed increases that month.

Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC) told Fleet Owner that crude prices have increased about 30% year-over-year, which means manufacturers— the key trucking customers— are still struggling to pass on these costs.

“I think energy and steel and other commodity prices that have had a large increase [in prices] are still working their way through the economy,” noted Brady. “Steel prices are still very high, and even if it doesn’t go up, it’s such a large increase within such a short period of time that companies are still adjusting.”

Although this would not have a direct impact on tonnage, companies that have difficulty passing along these costs may be forced to cut back on capital investment— which would affect trucking. And how much effect inflation would have on a manufacturer would depend how much it uses energy or expensive raw materials such as steel and rubber, Brady added.

In a separate report the BLS has upwardly revised productivity gains within the manufacturing sector during the third quarter. Manufacturing productivity increased 4.6% overall, with durable goods and nondurable goods increasing 4.8%, and 5.4%, respectively.

“This says that for the short term, there will be continual strong output at least for the next few months,” said Brady. “The warning signs is that the pace of growth may slow. For example, in recent ISM [Institute for Supply Management] reports, the unfilled orders index has decreased the last two months.”

Although this represents slower growth, it does increase the likelihood that backlogs could shrink going into 2005, which would mean manufactures would not be able to sustain output, he explained.

“Everything still appear to be in equilibrium or showing lean inventories, which implies sales are stimulating orders,” Brady said. “Retail sales are growing although the rate has been decelerating.”

The indicators that have the most effect on tonnage— retail sales and employment— will ultimately determine the outlook for 2005, he said. “We’ll find out about that after the holiday season. So far it doesn’t appear to be a gangbuster year, or a bust.”

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