United States gross domestic product (GDP) grew 2.1 percent in the third quarter, according to the Commerce Department’s second estimate, but truck tonnage remains relatively flat amid weak industrial and manufacturing output.
The U.S. economy improved more than originally thought in the third quarter.
Gross domestic product (GDP), the broadest measure of goods and services output, increased at an annual rate of 2.1 percent, according to the U.S. Commerce Department. Despite the positive revision – experts previously estimated third quarter GDP growth at 1.5 percent – there are signs that economic activity could be slowing.
Commerce’s “second” estimate is based on more accurate, updated information than was available last month. Positive contributions to gross domestic product included exports and personal consumption, and stronger stockpiles.
But third quarter growth decelerated from the 3.9 increase in real GDP in the second quarter, reflecting downturns in private inventory investment and slowing growth in exports, personal consumption, non-residential fixed investment, and state and local government spending. A slowdown in imports, which are actually a subtraction from national productivity, made the third quarter number appear better than normal.
Consumer confidence, however, has fallen recently because of the job market. According to the Conference Board’s latest survey, fewer people expect more jobs to be created in the near future, aand they don’t expect their incomes to rise. The survey is juxtaposed against the latest U.S. jobs report, which showed the economy created more than 270,000 jobs in October.
And some experts are worried that industrial production may be slowing, especially for transportation equipment and machinery. Since 1970, when those two sectors have slid at the same time, a recession has soon followed, according to Justin Ward, Wells Fargo senior equity research analyst.
Orders for Class 8 trucks, for example, appear to be tapering. FTR Transportation Intelligence recently reported that while preliminary orders grew in October from September, they were down 45 percent compared to a year ago and that orders fell short of analysts’ expectations. Fall typically is a time when equipment orders spike as companies finalize their fiscal year budgets, but fleets are being more cautious because of the tepid economy and slower manufacturing, according to Indianapolis-based FTR.
Meanwhile, rail car orders dropped 83 percent last quarter to the lowest level in decades, according to the Railway Supply Institute. Railroads depend heavily on commodities, which have seen prices collapse amid weak global demand. In the United States, concerns about pollution and availability of cheap natural gas have led to a steep decline in coal burning at electric plants.
But according to figures released Wednesday by the U.S. Census Bureau, orders for transportation equipment increased 8 percent to $82.1 billion in October, following two consecutive monthly decreases. Leading the way for transportation equipment is automobile and aerospace manufacturing.
Overall, new orders for durable goods – including transportation equipment – increased $6.9 billion, or 3 percent, to $239 billion for the month. Driving the increase was the rebound in transportation equipment, the Census Bureau said. Excluding transportation, new orders increased 0.5 percent.
Truck fleets hauled 1.9 percent more tonnage in October on a seasonally adjusted basis, offsetting losses of 1.6 percent the previous two months, according to the American Trucking Associations. The ATA’s Truck Tonnage Index also was up 2 percent compared to October 2014, but the gain was less than the year-to-date figure through October (3 percent).
“It was good to see tonnage increase nicely in October after contracting a total of 1.6 percent in August and September” ATA Chief Economist Bob Costello said in a statement. “However, tonnage has been overall pretty flat this year, as October’s reading is just shy of January’s level.
“I remain concerned about the high level of inventories throughout the supply chain,” he added. “We recently learned that inventories throughout the supply chain and relative to sales rose in September, which is not a good sign. This will have a negative impact on truck freight volumes over the next few months.”
The economy has proven to be a mixed bag for the better part of two years now. Housing and consumer spending have improved, but manufacturing output has softened due to the stronger dollar and growth in domestic oil production has fallen sharply due to weak demand as the global economy sputters along.
“There are definite signs of a slowdown in activity throughout the North American supply chain,” Jonathan Starks, director of transportation analysis at FTR, commented on the company’s website. “High inventories, weak manufacturing, and slowing intermodal moves are all indications of this slowdown. Slowing order activity from truck fleets for new tractors is another indication of the slowing market, as well as the fact that the driver shortage is less persistent than it was one year ago. It is a good sign that the economy continues to grow, and this weakness shouldn’t persist.”
If the economy picks up steam, many analysts and truck industry officials predict that shipping capacity will become tight as demand to move freight exceeds available equipment, or more importantly, available drivers. And new federal safety regulations expected to be issued next year could put additional pressure on driver supply as unqualified drivers are sidelined.
“Inventory destocking, sluggish trade, and weak manufacturing have created an environment much different than last year for truckers and transportation professionals,” said Starks. “While overall capacity is relatively tight, there is a dichotomy between what is seen in the contract portion versus the spot market. As supply has increased relative to demand, loads have moved back to the contract and dedicated markets that ran out of excess capacity in 2014 due to regulations and weather.
“The spot market, on the other hand, is showing definite weakness, with load activity weak, truck supply up significantly, and rates down from prior year. Contract rates continue to rise, although they have started to show some slowing. The market is relatively stable, with the major risk coming from a potential slowdown in freight demand.”
Mixed bag for U.S. economy causes drag on freight sector
