• DATVF.ATLPHL
    1.977
    0.052
    2.7%
  • DATVF.CHIATL
    1.901
    0.003
    0.2%
  • DATVF.DALLAX
    1.446
    0.003
    0.2%
  • DATVF.LAXDAL
    1.318
    -0.092
    -6.5%
  • DATVF.SEALAX
    1.017
    -0.041
    -3.9%
  • DATVF.PHLCHI
    1.094
    0.004
    0.4%
  • DATVF.LAXSEA
    2.162
    -0.084
    -3.7%
  • DATVF.VEU
    1.657
    0.020
    1.2%
  • DATVF.VNU
    1.543
    -0.029
    -1.8%
  • DATVF.VSU
    1.382
    -0.045
    -3.2%
  • DATVF.VWU
    1.589
    -0.063
    -3.8%
  • ITVI.USA
    10,426.310
    -84.160
    -0.8%
  • OTRI.USA
    12.050
    -0.110
    -0.9%
  • OTVI.USA
    10,424.030
    -83.420
    -0.8%
  • TLT.USA
    2.720
    0.000
    0%
  • WAIT.USA
    151.000
    -8.000
    -5%
  • DATVF.ATLPHL
    1.977
    0.052
    2.7%
  • DATVF.CHIATL
    1.901
    0.003
    0.2%
  • DATVF.DALLAX
    1.446
    0.003
    0.2%
  • DATVF.LAXDAL
    1.318
    -0.092
    -6.5%
  • DATVF.SEALAX
    1.017
    -0.041
    -3.9%
  • DATVF.PHLCHI
    1.094
    0.004
    0.4%
  • DATVF.LAXSEA
    2.162
    -0.084
    -3.7%
  • DATVF.VEU
    1.657
    0.020
    1.2%
  • DATVF.VNU
    1.543
    -0.029
    -1.8%
  • DATVF.VSU
    1.382
    -0.045
    -3.2%
  • DATVF.VWU
    1.589
    -0.063
    -3.8%
  • ITVI.USA
    10,426.310
    -84.160
    -0.8%
  • OTRI.USA
    12.050
    -0.110
    -0.9%
  • OTVI.USA
    10,424.030
    -83.420
    -0.8%
  • TLT.USA
    2.720
    0.000
    0%
  • WAIT.USA
    151.000
    -8.000
    -5%
EconomicsLast MileLess than TruckloadLogisticsNewsParcelSupply ChainsTruckingTruckload

Commentary: 2020 forecast is for a slow start, strong finish

Headline items for 2020

Retail sector – Consumers single-handedly carried the economy throughout the majority of 2019, and much will be the same throughout the first half of 2020. Consumer confidence remains elevated and conditions for them are stable. This is good news for those exposed to consumer-facing markets. Consumer activity isn’t expected to slow or contract in the second half of 2020. Still, some help should be coming from other segments of the economy as well, namely manufacturing and business investments.

Housing and construction Housing and construction struggled to gain traction throughout 2019. However, this was not due to a lack of demand. Demand for homes was high throughout 2019 and will remain strong going into 2020. There were supply-side limitations that hindered the amount of activity within the industry. These issues range from lot/land availability and availability of skilled labor to inventories and prices. These same issues will be present in 2020, but momentum is building. More projects breaking ground is good news for flatbed trailers. Additionally, more home purchases lead to those homes being filled with new furniture and appliances. All of these play into freight volumes.

Labor – The labor side of the economy is the underpinning of robust consumer trends as of late. Unemployment rates hit historic lows of 3.5%, and wages remain strong enough to support personal consumption expenditures. Unemployment levels will likely not surpass 4%, barring any black swan events that would shake up domestic growth, and as of now, no significant catalysts are building. These conditions will keep consumers making purchases, which will drive freight activity throughout the year.

Industrial – The manufacturing segment waned throughout 2019 and will have a slow start in 2020. Business investment slowed, and trade tensions frequently caused increased uncertainty. The Institute for Supply Management’s Purchasing Managers’ Index contracted through nearly the entire second half of 2019. The downward momentum will spill into 2020 as new orders for the industry struggle as well. There will be limited opportunities here.

Conversely, nondefense capital goods new orders are showing early signs of reversal. This suggests that business-to-business activity may increase in the coming months, likely during the second quarter. A boost here will take some pressure off of consumers and add to flatbed and dry van volumes.

International trade Trade tensions are the biggest concern for manufacturers and businesses that operate on an international scale. Consumer products seem to be the ace in the hole. It’s the major bargaining chip that will be leveraged to move things along, as needed. A hit here would undoubtedly be detrimental to all parties involved. Hefty additional tariffs on consumer products will be the most significant risk facing growth in 2020. However, this seems less likely after progress with a phase one deal with China. Trade tensions will likely escalate and die down as they did through much of 2019, but some slow progress should be made, with consumer goods being the breaking point. If there is no notable progress in the coming months, manufacturers and businesses will likely find workarounds to meet requirements. This can be in the form of expanding operations in countries in Southeast Asia, near-sourcing to Mexico or finding strategic loopholes to maintain business processes in China. Whatever form it may take, overall momentum will be sluggish during the first quarter. If it starts hitting the consumer, become concerned.

The landscape

It seems as though uncertainty became the theme throughout 2019. This stemmed from the shifting tides of the tariff war between the U.S. and China. Updates from President Trump’s Twitter account regarding sentiment toward a deal coming through often dominated headlines. The trade tensions impacted business decisions nationwide and echoed throughout the world, hitting many European industrial-based economies in the process. The uncertainty took away from freight volumes as manufacturing steadily declined throughout the year.

However, 2019 was up against steep comparisons as 2018 was a red-hot year, not only for manufacturing but for freight activity as well. Nonetheless, the Institute for Supply Management’s Purchasing Managers Index is in the fourth consecutive month of levels below 50. The levels are signaling contraction within the manufacturing industry. Further, the new-orders components of the index registered a 47.2 in the most recent month. This is telling for manufacturing as a whole going into the new year. The reduction in manufacturing translates to looser capacity and lower tender rejection rates for carriers that typically haul these goods. The current rise in outbound tender rejections have less to do with any rise from the industrial sector than with peak retail season and tight driver capacity during the holidays.

FreightWaves SONAR Ticker (ISM.PMI, OTRI.USA)

The most recent status for trade relations proved promising going into 2020, with a phase one deal in place. This is going to be a relief for those in the agricultural segment, and consumer-facing businesses are dodging a hefty duty that could have impacted prices in the retail sector in a meaningful way.

The macroeconomy is expected to ease going into 2020 and throughout the first quarter, with the rate of growth moderating through, but not contracting. Consumer activity supported much of the growth throughout the 2019 calendar year. Conversely, the manufacturing segment waned throughout the same period.

Consumer strength

Personal consumption expenditures are one of the most significant components of the U.S. economy and will likely remain stable overall in the pace of growth going into early 2020. Though there may be some mild easing, core personal consumption expenditures should end the fourth quarter around 1.7% above the year-ago level. The rate of growth will modulate throughout the first quarter of 2020, nearing 2% on a year-over-year basis. Personal consumption of goods should remain near 3% above the year-ago levels for the first quarter of 2020. This is a slight easing for the goods side, which is pertinent to freight movements, but it should remain positive on a quarterly basis. Of course, this is barring any black swan events on the trade front. 

As it stands now, year-over-year growth in disposable income (RPDIMG.USA) is moving upward after moderating through much of 2019. The more disposable income consumers have, the more goods they purchase, and this could mean tighter driver capacity as these goods make their way across the country (OTRI.USA).

FreightWaves SONAR Tickers: (OTRI.USA, RPDIMG.USA)

Additionally, consumer confidence plays a role in purchasing tendencies. When consumers are feeling more confident, they are more likely to leverage credit when disposable income is lacking. Some might see this as a positive from a pure contribution to the gross domestic product, but it’s essential to be mindful of consumers overextending themselves. Delinquency rates (DRCC.USA) were generally flat in 2019. Levels are slowly rising but still far off from pre-’08 recession levels. It’s not a threat now but should be monitored throughout 2020.

FreightWaves SONAR Ticker: (DRCC.USA)

The durable goods portion of personal consumption expenditures (PCEY.DG) should remain stable going into the first quarter of 2020, staying above year-ago levels. The nondurables component also will maintain positive growth trends on a quarterly basis, modulating near the 3% range on a year-over-year basis. The partial trade deal will alleviate some concerns of price increases hitting consumer-facing goods, which would likely limit expenditures and hinder economic growth going into the new year. The growth will be dependent both on consumer confidence and employment conditions. Sentiment remained generally elevated in the face of volatile headlines throughout the year, showing some resilience. The stable conditions for consumers also will contribute to freight volumes (OTVI.USA) as these goods are hauled throughout the country.

FreightWaves SONAR Ticker: (OTVI.USA, PCEY.DG)

Unemployment levels hit record lows throughout 2019, and rates should remain below 4% through the first quarter of 2020. Gross domestic product is expected to decline slightly for the fourth quarter but should stay positive, nearing levels of 1.5%.

The laggard 

As mentioned earlier, the manufacturing segment will not fare as well as the consumer segment of the economy. Total industrial production (IPROG.USA) will likely eke out a slight gain in 2019 compared to 2018 as a whole, but year-over-year growth rates are declining steadily. The fourth quarter of 2019 will likely be over 1% behind the same quarter in 2018. The deceleration will likely persist into 2020, with a trough in quarterly trends in March. The manufacturing component makes up nearly 70% of the overall industrial production index (IPROG.MFTG) and will be the primary source of contraction for the measure.

Quarterly trends for the manufacturing component of industrial production are already negative, and levels will likely come close to a negative 2% through the first three months of the year. The downward movement for manufacturing means fewer opportunities for dry van, flatbed and less-than-truckload. The most recent uptick for industrial production is tied to the General Motors strike coming to an end. The ramp-up in output boosted the index for the month but cannot be expected to perform at the same capacity to prop up manufacturing going into 2020.

FreightWaves SONAR Tickers: (IPROG.USA, FOTRI.USA, VOTRI.USA)

Although much of manufacturing is expected to be rather weak in the first three months of the year, production is expected to pick up by March. Business-to-business activity is starting to build some momentum late in 2019 and should support some rise for the manufacturing segment by the second quarter. Further, the rise in nondefense capital goods new orders, excluding aircraft (ORDR.NDCGXA), signals that there will be support for more business investment going into the first quarter than in much of 2019.

Moving forward

The consumer is key. Businesses across all segments should approach the first half of 2020 with caution. Slower growth is expected, but that does not mean contraction or recession. It means it’s advisable to plan for reduced activity and approach opportunities strategically. That may mean using competitive pricing to capture market share or even preparing for the stronger second half of 2020. There will be uncertainty that no one will be able to accurately foresee coming from the ever-changing trade front. However, there is reason to be optimistic. Consumer conditions remain favorable, business-to-business activity is showing some signs of life, and most of all, you have FreightWaves SONAR to help you navigate what’s likely to be a sluggish first half of the year.

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Anthony Smith

Before FreightWaves, Anthony received his Bachelor’s and Master’s degree in Economics from New Mexico State University. Anthony started his career off in tech as a Commercialization Associate where he identified and evaluated emerging technologies and innovations. Anthony transitioned to a Corporate Economist & Consultant where he advised CXO leaders and Fortune 500 companies on economic analysis, industry trends and internal strategy. Anthony’s clients varied from construction, trucking, industrial, software, manufacturing and retail industries. Anthony most recently worked in-house as a Corporate Economist for a building products company. He led analysis around M&A, pricing sensitivity, competitive intelligence and annual sales forecast for the executive team.

6 Comments

  1. We’re in a CREDIT BUBBLE that has been blown to unsustainable proportions ! This ain’t no “goldilocks” economy !

    Quote:
    Current U.S. Recession Odds Are The Same As During ‘The Big Short’ Heyday

    Quote:
    ‎November‎ ‎27‎, ‎2019‎
    Can the Fed Slowly Deflate the Credit Bubble?
    Historically reactive, the central bank is finally trying to get ahead of a potential crisis. 

    Google this :

    “Employment Lies. The Manipulation of US Unemployment Data”

    December 5 2019
    “Goldman Sachs says that every one of its private equity clients is preparing for recession”

    December 6 2019
    “Consumer Credit Bubble Could Drag Economy into Recession”

    Quote:

    A Strong U.S. Consumer Is a Lagging Indicator

    Spending is always strong and unemployment low at the onset of a recession.  

    Investors who are optimistic about the outlook for the U.S. economy and financial markets due to reports of healthy consumer spending, retail sales and an unemployment rate that held near a 50-year low in August need a history lesson.

    Experience from the Great Recession shows that there is a lag of a several months before adverse consumer sentiment gets translated into reduced spending. Sentiment was still rising until January 2008, but then began to decline before bottoming in November 2008.

    Why have consumers largely shrugged off the pessimism toward trade shown by manufacturers? A key reason is that spending is closely tied to movements in equity prices. Equities form a bigger component of retail investors’ portfolios than bonds, and consumer optimism rises and falls with the stock market. The S&P 500 index reached a record high in March 2000, while it’s high in 2006 came in December, both occurring 12 months before the onset of recessions.”

    BE VIGILANT !

    In my humble opinion …………..

  2. Quote :

    Corporate Profits | U.S. Bureau of Economic Analysis (BEA)

    Quarterly
    3rd quarter 2019: -0.2 percent
    2nd quarter 2019: 3.8 percent

    Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) decreased $4.7 billion in the third quarter, in contrast to an increase of $75.8 billion in the second quarter.

    Profits of domestic financial corporations decreased $4.7 billion in the third quarter, in contrast to an increase of $2.5 billion in the second quarter. Profits of domestic nonfinancial corporations decreased $5.5 billion, in contrast to an increase of $34.7 billion. Rest-of-the-world profits increased $5.5 billion, compared with an increase of $38.7 billion. In the third quarter, receipts decreased $10.0 billion, and payments decreased $15.5 billion.

    Next release: January 30, 2020 at 8:30 A.M. EST

    Corporate profits represents the portion of the total income earned from current production that is accounted for by U.S. corporations. The estimates of corporate profits are an integral part of the national income and product accounts (NIPAs), a set of accounts prepared by the Bureau of Economic Analysis (BEA) that provides a logical and consistent framework for presenting statistics on U.S. economic activity.

    Corporate profits is one of the most closely watched U.S. economic indicators. Profitability provides a summary measure of corporate financial health and thus serves as an essential indicator of economic performance. Profits are a source of retained earnings, providing much of the funding for capital investments that raise productive capacity. The estimates of profits and of related measures may also be used to evaluate the effects on corporations of changes in policy or in economic conditions.

  3. Quote:

    Nov 7 2019
    The Fed’s monetary juice has tied directly to the rise in stocks: ‘Here we go again’

    Financial markets have seen this story before: The Federal Reserve rides in with piles of freshly minted digitized money that helps send the prices of stocks and other assets lurching forward.
    But this isn’t 2009.

    Instead, it’s 2019, and once again the central bank, whether by intention or coincidence, has seen its efforts to keep the financial system running smoothly end up as a bonanza for Wall Street, where the decadelong bull market has taken another leg higher in step with a Fed liquidity effort.

    Since a mid-September flare-up in the repo market, where banks go for overnight financing, the Fed has been injecting billions into the markets, buying up mostly short-term Treasury bills in an effort, ostensibly, to keep its benchmark funds interest rate within its targeted range, currently at 1.5% to 1.75%.

    The results: a $175 billion expansion of the Fed’s balance sheet to $4.07 trillion, representing growth of 4.5% since the operations began. During that time, the S&P 500 has risen just shy of 4%.

    Coincidence? Maybe. After all, the Fed has stressed repeatedly that the recent bond-buying operations are not akin to the three rounds of quantitative easing that happened during and after the financial crisis and accompanying Great Recession.
    Under QE, the Fed credited primary dealers with funds in exchange for high-quality assets like Treasury debt, in an effort to loosen financial conditions, lower borrowing rates, and direct money to stocks and corporate bonds. The operations this year, as stated by the Fed, are specifically to stabilize short-term rates, though the process is identical.

    Market participants see stark similarities not just in the operation — but also in its effects.

    Financial imbalances
    QE and the latest round of stimulus are “absolutely” similar, said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. “Financial conditions are extraordinarily loose and accommodative. One of the things that the Fed balance sheet liquidity has done has also been to allow the U.S. dollar to weaken for really the first time in about two years. These are things that are definitely contributing to this move in the market.”

    Indeed, the Goldman Sachs Financial Conditions Index, which Fed officials follow closely, is around its lows of the year, due in large part to rising stock prices and falling bond yields and credit spreads.

    Shalett said the Fed’s moves have also caused financial imbalances elsewhere, a key concern for central bank officials who have pushed back against the recent interest rate cuts and looser policy. She cited the since-abandoned WeWork initial public offering as one example of money looking for financial assets rather than being put back into the real economy.
    “This really speaks to the idea that once again we’re on the brink of potentially being in this bubble, where valuations are about the story and the narrative and not about the cash flow and profits,” she said. “You would think we would have learned this lesson before. But here we go again.”

    Wall Street took notice earlier this week when hedge fund king Ray Dalio of Bridgewater Associates penned his latest missive for LinkedIn, this one titled “The World Has Gone Mad and the System Is Broken.”

    In the essay, the head of the largest hedge fund in the world noted that investors are having money “pushed on them by central banks that are buying financial assets in their futile attempts to push economic activity and inflation up. The reason that this money that is being pushed on investors isn’t pushing growth and inflation much higher is that the investors who are getting it want to invest it rather than spend it.”

    Dalio said the active role that central banks are playing in the financial system is creating wealth disparity because the money earned by those at the top is not flowing into those further down the ladder.
    “Because the ‘trickle-down’ process of having money at the top trickle down to workers and others by improving their earnings and creditworthiness is not working, the system of making capitalism work well for most people is broken,” he wrote. “This set of circumstances is unsustainable and certainly can no longer be pushed as it has been pushed since 2008. That is why I believe that the world is approaching a big paradigm shift.”

    Another buyback boom
    The Fed’s machinations, however, are working for financial markets.
    The S&P 500 has gained about 4% in the fourth quarter and more than 7% over the past three months, thanks in good part to a strong push in stock buybacks, which also have historically risen in tandem with the Fed’s liquidity efforts Share repurchases are tracking 14.9% higher in the third quarter from Q2, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
    That market gain has come even amid a more pronounced slowdown in manufacturing as well as corporate profits that appear headed for the fourth consecutive decline on a year-over-year basis. S&P 500 company earnings are tracking at a 2.7% drop in Q3 and are expected to fall 0.4% in the fourth quarter, according to FactSet estimates

    “The surge in equity markets has come on the back of the Fed hosing liquidity into the banking system via repos and T-Bill purchases,” Albert Edwards, market analyst at Societe Generale, said in a note for clients. “Remember this is not QE4, as the Fed has repeatedly assured us. Tell that to the equity market, which is certainly reacting as if it was as it forges to new all-time highs.”
    For investors looking over the long haul, the developments should be “massively concerning,” said Morgan Stanley’s Shalett.
    “The market is diverging from the fundamentals quite a bit,” she said. “This entire cycle has been proof in the pudding that liquidity is going into the financial markets. It’s not going into the real economy.”

    End quote :

  4. MARKET MELT UP ! In my humble opinion …….

    Quoted from Investopedia :

    “What is a ‘Melt Up’?
    A melt up is a dramatic and unexpected improvement in the investment performance of an asset class, driven partly by a stampede of investors who don’t want to miss out on its rise, rather than by fundamental improvements in the economy. Gains that a melt up creates are considered to be unreliable indications of the direction the market is ultimately headed. Melt ups often precede melt downs.”

  5. Here is what I like to see in the media in regards to sentiment extreme .

    Quote ”
    Dec 31 2019
    “Don’t look now, but Goldman Sachs is saying the economy is nearly recession-proof ”

    ROTFLMAO !

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