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Upward 2012 Q3 GDP Revision Reflects Mainly Growth in Inventories

Last Thursday, the U.S. Bureau of Economic Analysis reported that gross domestic product (GDP) grew at a 2.7% annual rate during the third quarter of 2012, which was an upward revision from the preliminarily reported annual growth rate of 2.0%. At a first glance, this appears to be good news, but as economist James Hamilton points out, a more thorough reading of the report shows that the U.S. economy is “growing a slower rate than any of us would like.”

In particular, 0.8 percentage points of the growth in GDP translated into increased inventory accumulation, and 0.7 came from higher levels of defense spending. Excluding these factors, Q3 GDP grew at a measly 1.2% annual rate. Hamilton reasonably anticipates that GDP will continue to grow at below-average rates during 2012Q4 and in the near future.

For the trucking industry, I find the increased accumulation of inventories to be the most concerning aspect of this report. As shown in the below figure, U.S. total trade inventories increased by $135b, or 9.1%, from March 2011 through September 2012 (the most recent month currently reported by the Census Bureau). Over the same time period, total retail sales actually declined by $17b, or 1.4%. Basically, retail sales have been largely flat for nearly two years, while inventories have steadily accumulated.

I have discussed the problems of increased inventory accumulation previously on this blog, and it remains troubling for trucking to have increasing production volumes be simply stashed in warehouses.

New orders for durable goods (products with a useable life of at least three years) remained flat during October (.pdf), as did new home sales (.pdf). Moreover, consumer confidence improved by only 0.6% during November.

Recently, the American Trucking Association reported that truck tonnage declined by 3.8% in October, the first year-over-year drop since November 2009. Clearly, the trucking sector is in need of a positive shock to demand. A possible source for such a shock is much less clear.

 

Jeremy West
Internet Truckstop Economist

by admin

Surprise, Surprise… the Manufacturing Sector Remains Choppy

By Jeremy West, Internet Truckstop Economist

Over the past few months, it has seemed like U.S. manufacturers are treading water. Factory output isn’t dramatically sinking, as occurs whenever the economy is entering a recession. But, on the other hand, we’re not seeing any production gains worth cheering about either.

Manufacturing Orders and Production

Two basic metrics are tracked for manufacturing output: the quantity of current production and the volume of orders for future production. Last Thursday, the Census Bureau reported that new orders in August for factory production fell 5.2% month-over-month and 2.5% year-over-year. This was the first year-over-year decline in new orders since November 2009.

Much of this decline resulted from a 101.8% drop in orders for commercial aircraft. As shown in the figure, orders excluding transportation equipment increased by 0.28% YOY. Regardless, the message is clear: manufacturing production is stalling.

Separately, the Institute for Supply Management reported that the Purchasing Managers’ Index (PMI) increased to 51.5 during September. This was positive news: any value above 50 indicates manufacturing growth, and the index has been below 50 since May. The next few months will show whether this represents a temporary spike in manufacturing activity or a reversal of the contraction seen in the manufacturing sector during 2012Q2.

So, the production picture isn’t entirely gloomy, and some regions of the country are performing better than others. During September, manufacturing output improved in Texas and in the Central Atlantic regions, worsened in New York and in much of the Midwest, and remained largely flat in the Philadelphia region.

Taken together, these reports offer a mixed outlook for total manufacturing—and, subsequently, trucking—with aggregate production activity trending to the downside. The next Federal Reserve Industrial Production and Manufacturing report is scheduled for October 16th. Don’t be surprised to find that factories continued to slowly churn.

by admin

Precautions Ahead Of Isaac

The ATA and other organizations are advising drivers and truckers  to take precautions ahead of the soon to be Hurricane Isaac. The Federal Motor Carrier Safety Administration (FMCSA) are also warning drivers and motor carriers to be careful and are urging them to look at what trucking laws have been suspended and how it may effect you. You can view that article here http://www.fmcsa.dot.gov/emergency/disaster-relief.htm

For more information, ATA encourages people to visit Ready.gov or http://www.redcross.org/. Also, for carriers interested in assisting in post-incident relief efforts, please visit the American Logistics Aid Network at http://www.alanaid.org/ or go to trucking.org.

by admin

Trans4Cast for the week.

The ITS Market Demand Index (MDI) decreased 18% to 14.09 from 17.22 the previous week. Load availability decreased 29% and Load searching decreased 16% from the previous week. We saw Truck availability decreased 11% while  Truck searching decreased 38% and the overall average equipment rate decreased slightly to $2.29 from $2.30 the previous week.

Fuel prices remained unchanged at $3.65 per gallon from the previous week.

This week marks the first time during 2012 that MDI and load availability have dropped below their respective 2011 levels. Weak manufacturing data continue to support declining trucking volumes. On a positive note, the Census Bureau released a report this week showing gains in residential construction. However, the outlook for trucking during the second half of 2012 continues to look shaky.

by admin

Defensive driving or common sense

From the very first day  in drivers education when every driver  turns 15, the thought is pushed into our brains to “drive defensively”. Many of the people out on the road today do follow that rule, but to what extent is it that we are too defensive behind the wheel? Or is it defensive driving at all, maybe it is just using common sense when sharing the road.

Recently ATA (American Trucking Association) put out an article about the recent decision that the FMCSA (Federal Motor Carrier Safety Administration) made to continue to hold the trucking industry responsible for every truck-involved crash. These crashes end up going on to the CSA reports, even those that the truck driver wasn’t responsible for.

When most brokers are hiring a carrier they will check out the driver’s CSA score through a Carrier Monitoring System (such as CACCI), this ensures the broker that their load will get to its destination in a timely and fashionable matter. But if the carrier has a low CSA rating because it has been in three crashes due to non commercial drivers texting and driving, drunk drivers or even just icy roads, this truly hurts the carrier. All three crashes are not their fault, but the carriers end up losing money in the long run.

ATA and other trucking industry groups have requested that FMSCA  develop a process where the police report is reviewed and determine the crash accountability. In addition to that, removing non-preventable crashes from the carrier’s CSA profile. It appears that after some pressure from special interest groups, FMCSA has put a halt to this action until further notice.

FMCSA did some research and found that  when driver actions are cited as a main reason for a car-truck crash, that the driver of the smaller vehicle is cited in the majority of cases. So, this brings us back to the original point of driving defensively, are the non-commercial drivers being too defensive on the roads or just not using common sense?