Class 8 truck order rate dipped in April
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Slip in truck orders may portend little ill for trucking

May 4, 2012
Truck order rate may have simply gotten ahead of itself

Net orders for Class 8 trucks fell in April, but it’s debatable whether that reflects poorly on the state of the ongoing recovery of the truck market. While one industry analyst interprets the data as meaning the truck build rate had hit a “soft patch” and another that truck orders are showing a solid downward trend, still another contends the order rate simply “got ahead” of itself.

ACT Research Co. LLC (ACT) related yesterday that net orders for North American Class 6-8 trucks for April were down from the month before. ACT predcited that the final numbers, which will be released in mid-May, will approach 17,200 units for Class 8 trucks and 8,600 for Class 6-7 vehicles.

 “Orders continued to come in below the level ultimately needed to sustain current rates of build,” said Kenny Vieth, ACT’s president & senior analyst. “Conditions that contributed to the soft patch that started in March were still in play in April, including higher diesel and new truck prices.

“Beyond that,” he continued, “the data that we use to predict demand remain healthy. The overall economy-- and in particular the manufacturing sector-- continues to grow, trucker profits are healthy and used-truck prices remain close to record levels.”

And today research firm FTR Associates released preliminary data showing an even lower number than ACT’s expected figure for North American Class 8 truck total net orders in April. FTR pegged the order level at just 16,877 units— and stressed that it is “the lowest number since September 2010 and 55% below the same month a year ago.” 

As FTR sees it, the April orders “continue the downward trend” in Class 8 orders for 2012, with annualized units for the past three months now standing at 234,600 units.

 “A four-month trend is certainly significant and it is causing many in the industry to question their assumptions of growth for 2012,” remarked FTR president Eric Starks. “Now that we are through the typical ordering season, we expect orders to remain in the sub-20k level through the summer months. If the truck OEMs don’t scale back their build plans for the second half of the year, then we are likely to see a more significant payback once we get into 2013.”

But trucking analyst Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC), contends that truck orders have slipped because they “got ahead of themselves.” In his view, that trend started thanks to tax elements of the federal stimulus package that fleets took advantage of last year.

“Some 2012 truck sales were ‘pulled forward’ into 2011 by accelerated depreciation and write-off provisions of the stimulus package that benefitted fleets and so stimulated truck orders,” Brady told FleetOwner. “Then [coming into this year] truck orders were too strong in relation to the economic recovery. On top of that, truck dealers have increased their inventories—with 39,000 units on dealer lots as of the end of March—and now are only ordering to sales.”

As for what’s driving truck sales, Brady points to both ‘normal’ and pent-up replacement demand. “Truck sales [in 2012] will be above the normal replacement demand of 181,600 [Class 8] units because of the pent-up demand of those fleets that held onto equipment longer [during the recession and on into the recovery]. Profits for fleets are going back up, so they afford now to move back to more normal equipment replacement cycles.”

According to Brady, the current “softness” in truck orders does not signal a downturn in truck sales, but that “truck orders—especially by dealers--  got ahead of themselves.”

Brady also emphasized this is not a typical economic recovery by any measure. “The economy is coming back but at a snail’s pace,” he said, “and will continue to grow at a sluggish rate for some time, even for years to come."

Concerns about the state of trucking may also be allayed by considering that akey influence on the strength of the truck market—  the health of the manufacturing segment, as pointed to by ACT’s Vieth-- appears to be growing stronger. For example, the latestmanufacturing  Report On Businessreleased by the Institute for Supply Management(ISM) indicated that “economic activity in the manufacturing sector expanded in April for the 33rd consecutive month, and the overall economy grew for the 35th consecutive month.”

“The PMI registered 54.8 %, an increase of 1.4 percentage points from March’s reading of 53.4%, indicating expansion in the manufacturing sector for the 33rd consecutive month,” said Bradley J. Holcomb, chair of the ISMManufacturing Business Survey Committee.

Holcomb added that “16 of the 18 industries reflected overall growth in April, and the New Orders, Production and Employment Indexes all increased, indicating growth at faster rates than in March. The Prices Index for raw materials remained at 61%in April, the same rate as reported in March."

On the other hand, The U.S. Labor Dept.'s monthly jobs report issed this morning revealed that overall job growth slowed last month-- perhaps foretelling that the economy has entered a sluggish spell.

According to the Bureau of Labor Statistics (BLS), in April nonfarm payroll employment rose by 115,000 while the unemployment rate was little changed at 8.1% and the number of unemployed persons (12.5 million) also changed little.

BLS said employment increased in professional and business services, retail trade and healthcare segments, but declined in transportation and warehousing.

Transportation and warehousing lost 17,000 jobs in April, with employment declines in transit and ground passenger transportation (-11,000) and in couriers and messengers (-7,000) noted by BLS.

However, BLS also pointed out that job growth in the manufacturing sector is seen as continuing apace with earlier gains:” Manufacturing employment continued to trend up (+16,000) in April, with job growth in fabricated metal products (+6,000) and machinery (+5,000).Since its most recent employment low in January 2010, manufacturing has added 489,000 jobs, largely in durable goods manufacturing.”

But employment in other major industries, including mining, logging and construction, that influence truck sales remained little changed last month.

And as pointed out in a report posted today by The Wall Street Journal, economists surveyed by Dow Jones Newswires were disappointed by April’s overall numbers, having anticipated “a gain of 168,000 in payrolls and for the jobless rate to remain at 8.2% in April.”

FTR added that its final data for April will be available later in the month as part of its North American Commercial Truck & Trailer Outlook service while ACT noted that its preliminary net order numbers are “typically accurate to within 5% of actual.”

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