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Heavy Duty Truck & Trailer Executive Summary

The North American Economy continued its downward spiral in December. The Purchasing Managers’ index (PMI) for manufacturing declined to 32.4 from 36.2 the previous month. This is the lowest level since the 1982 recession. If this level of manufacturing activity continues through 2009 it would translate to a decline in GDP of 2.8%. The Non-manufacturing index also continued to contract as the PMI for this segment registered 40.6. This does represent a 3.3 point increase from the prior month primarily lead by improvements in the financial sector. This level below an index level of 50 continues to indicate further contraction in this sector. The Conference Board’s leading economic indicators all remained negative. Leading and coincidental indicators continued to decline while lagging indicators increased. Overall the North American economies had a very difficult December.

This economic difficulty showed its impact throughout trucking. Freight continued its November decline and contracted on an annualized basis nearly 3.0%. Used truck sales have halted due to lack of financing and new truck orders have stabilized at 10,000-11,000 units due to financing issues and buyers concerns lead by overcapacity and lack of Freight. Current industry estimates for 2009 are a continued decline of freight in the 2% range. New truck orders and builds will be in the 125,000 to 140,000 range.

In looking for key indicators for a turnaround the factors are mixed. New and used home sales remain at an annualized 5 million plus (Anything over 4.5 million indicates an improving market.) The average value of a sold home declined to $209,000 (This value needs to exceed $250,000 to stop the need of banks to increase loss reserves.) LIBOR spread is .42 (Anything below .75 indicates credit is flowing smoothly. ) Oil remains between $35 and $50 per barrel (Anything below $100 helps economic growth.) Other indicators which measure turnaround include steel usage and new home starts. Steel usage is off by 50% from mid year and housing starts are at the lowest level since 1982.

Most economists believe we are at the bottom of a U shaped trough. Some things such as credit availability and home mortgage rates are showing significant improvement. LIBOR spreads indicate and businesses report that credit is easing. Thirty year home mortgage fixed rates for qualified buyers in the U.S. has fallen below 4.5%. Businesses and financial institutions report that there is ample liquidity in the economy.

It is our belief that the current trucking outlook of a 12 to 18 month recession is overly pessimistic. It does not take into account the impact of economic stimulus packages that will be implemented in the U.S. and Canada during the first quarter of 2009. These combined packages will exceed $900 billion. They are also focused on tax cuts and infrastructure investment which will have the most immediate impact. We continue to believe that there should be a marked improvement in the North American economy in mid to late third quarter 2009.


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