Heavy Duty Truck & Trailer
The Economy showed an increased
rate of recovery in January. Fourth quarter GDP improved to
5.7%. Much of this was due to inventory replenishment. After
adjustment real growth averaged 2.2%. Additionally in December
manufacturing in the U.S. and Canada began to add jobs. For the
first time in 2009 the average work week exceeded 40 hours.
Overall the job situation worsened as the public sector and the
non manufacturing economy shed 20,000 more jobs than
manufacturing added. The Purchasing Managers index’s for both
manufacturing and non manufacturing reflected overall sector
expansion. The manufacturing PMI increased 3.5 points to 58.4
from December’s 54.9. This is the highest index since August
2004. The improvement was driven by new orders, up nearly 2%,
production up nearly 10%, and employment up almost 6%. Thirteen
of the 18 industries reporting showed growth indicating that
expansion is widespread. The non manufactures index also
indicated expansion with a slight improvement of .4 points to
50.5. The major drag on the index was a decline in business
activity, which was down one point. Positive contributors were
production up 5% and employment up 2% but still contracting.
The Conference Board’s index of economic indicators increased
strongly in December. The leading economic indicators improved
1.5 points to 106.4. The major contributors were the interest
rate spread and new housing permits accompanied by to a lesser
extent, consumer confidence and stock prices. Eight of the ten
indicators in the LEI showed improvement. The coincident
indicators remained steady at 99.9 supported mostly by
industrial production. The major negative remains unemployment.
The lagging indicators continued to decline. The Conference
Board consumer’s confidence index improved from 53.6 to 55.9. A
reading in a normal economy would be 90. A major contributor is
the consumer opinion of the present situation. The index rose
from 20.2 to 25.0. Still many more remain pessimistic than
optimistic especially about job market improvement. Housing
remained in the doldrums with the sale of existing homes
declining nearly 20% from November. This is due primarily to the
end of the government tax credit for first time home buyers.
Sales still annualized at over 5.5 million far exceeding the 4.5
million in a normal market. The average home selling price was
$178,300 well below the $200,000 average in a healthy economy.
There is a 7.2 month supply of existing homes for sale. New home
sales declined 10.9% from November to 342,000 units. This is
well below the 1,000,000 new home sales in a healthy economy.
Average selling prices of $290,000 is well above the $250,000 in
a healthy economy. Days supply increased from 7.8 to 8.4 months.
The most positive news for housing was an increase of 11.1% for
new home permits to 653,000. This may be the first time that
home builders may be starting to increase production. Housing
starts in December annualized at 557,000 or down 4% form
November. This was mostly holiday and weather related.
Completions were 768,000 down 11% from November showing a trend
of attempting to dry up new inventory.
Other indicators either remained positive or indicated growth
all be it from a low level. January auto sales improved nearly
6% over the prior year annualizing at a seasonally adjusted
11,500.000 units. This is still well below the 14,000.000 units
in a normal market. LIBOR remained steady at 23 basis points
indicating good credit flow between banks although the lending
environment remains difficult.
Trucking recovery will remain at a very low level. OEM’s are
predicting another down year with the class 8 build ranging
between 110,000 and 140,000 units. There has been a short term
increase in build rates to build out the last of the 2010
pre-emission change engines. This should end by March and no
real pick up in production is expected before the fourth
calendar quarter. This is supported by the decline in new truck
order rates in January to 6212 units. This is the lowest order
level since July 2002 when the pre-buy ended prior to the 2002
engine emission change. Fleets continue to struggle as most
reported a decline in earnings or increased losses for 2009.
Indications are that bankruptcies increased in the fourth
quarter 2009 and are accelerating in the first quarter. Banks
are forcing foreclosure because there is now a used truck market
for failed fleet trucks. Additionally many struggling fleets
will not be able to come up with license, tax and insurance
required by April of this year. Even though freight has improved
in November and December it still ended the year down 8% from
2008. That year was down 12% from 2007. Fleets still have 3% to
5% of their trucks parked as excess capacity and many have
changed their replacement cycle from 3 to 4 years to 4 to 6
years. With the ready availability of 2 to 3 year old used
trucks and a trend toward rebuilding and reconditioning older
units, most major fleets will buy very few new units this year.
Our outlook for the economy remains positive. The improvement,
however, will be very slow. There is no single or small group of
factors existent that will lead a fast economic improvement that
occurred in past cycles. The 92-94 upturn was lead by new
technology and the “dot.com” bubble. The recovery after 9/11 was
lead by housing. All of the shocks to our economy have not been
fully realized. We are yet to see or understand the full effect
of the commercial real estate failure, weakened European and
Asian economies or our own greatly accelerating national debt.
It is our opinion that we will not see significant recovery
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