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Playing the economic guessing game

Nov. 4, 2014
In some ways, a lot of the data used to indicate the glide path for the U.S. economy is conflicting in many ways.

In some ways, a lot of the data used to indicate the glide path for the U.S. economy is conflicting in many ways.

Some recent metrics – such as a sharp decline in U.S. exports – an indication that freight volumes may suffer down the road, whereas as others – such as the PMI index compiled by the Institute of Supply Management (ISM) – report robust domestic manufacturing activity, which seems to show the freight environment should stay strong.

Lindsey Piegza, chief economist for investment firm Sterne Agee, noted that the ISM’s “unexpected” PMI jump from 56.6 September to 59 in October – the highest reading since August – shows that despite continued weakness in domestic spending patterns, U.S. manufacturers continue to ramp-up production heading into the final quarter of the year.

“But with international growth rapidly declining – a reality already identifiable in waning export growth – rising inventory levels will likely continue as production continues to outpace consumers' ability and willingness to spend and absorb such an elevated level of output,” she cautioned.

Indeed, in international news, Germany's PMI fell from 51.8 to 51.4 in the ISM’s final October reading, with the aggregate index for the Eurozone slipping from 50.7 to 50.6, she pointed out.

In China, the October manufacturing PMI dropped from 51.1 to 50.8, while the non-manufacturing index slipped from 54.0 to 53.8 – neither of them happy markers, to say the least.

Yet from the perspective of equipment acquisition activity within the trucking industry, things look a lot rosier.

Look at the used Class 8 truck market, for instance: ACT Research said total volumes for such units increased 6% month over month and 4% year over year in September, with the average selling price of total reported Class 8 trucks hitting a new high in September, the firm said.

“Year-to-date, sales remain down 4%,” noted Steve Tam, ACT’s VP for the commercial vehicle sector with ACT. “But given the inventory constraints the industry has been dealing with for the past several years, the September year-to-date figures are encouraging.”

He added given the stronger than expected pricing performance for used Class 8 units, ACT is increasing its guidance on price expectations to a gain of 10-15% for 2014 – and that boost in resale value will no doubt help fleets looking to buy new equipment.

And many fleets remain in a buying mood, too, according to the Q4 2014 Fleet Sentiment Report survey conducted in October by CK Commercial Vehicle Research (CKCVR). That survey indicates fleets maintain “solid” purchasing plans for first half 2015 Class 8 deliveries, with the overall Q4 2014 FSR Buying Index reaching 109.5 – up 2% year over year.

Yet there’s a hitch in those buying plans – the continued lack of drivers.

“While current purchase plans are strong, fleets continue to report that they cannot add any capacity due to lack of qualified drivers,” noted CKCVR’s Chris Kemmer.

“Just 1% of planned Class 8 orders reported in Q4 are designated for fleet growth, the rest being for replacement,” she said. “Over and over we hear from the fleets reporting ‘we'd buy more equipment if we had more drivers.’ Most are in a good place financially with plenty of available freight but without drivers, additional trucks don’t make sense.  Replacement demand for the time being remains strong."

We’ll just have to see how it all comes out in the wash as 2014 draws rapidly to a close.

About the Author

Sean Kilcarr 1 | Senior Editor

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