Heavy Duty Truck & Trailer
The U.S. and
Canadian economies continued to decline in February. The
only positive conclusions that can be drawn are that rate of
decline has slowed. The ISM Purchasing Manager’s Index for
Manufacturing was 35.8 up .3 from January. This indicates
that manufacturing continues to remain depressed and that
GDP continues to contract. Any number below 42 indicates a
contraction in the overall economy and a number below 50
indicates a contraction in manufacturing. The
non-manufacturing index was 41.6 again any number below 50
indicates contraction in this area. All sectors in the
economy have shown contraction except for food and low-end
retail such as Wal-Mart which have remained strong.
The Conference Board’s index of economic indicators remained
mixed. Leading indicators showed a slight improvement driven
by continued liquidity from an increasing money supply.
Coincident and Lagging indicators declined driven by
increased unemployment and a decline in general economic
activity in the manufacturing and non-manufacturing sectors.
All twelve regions monitored by the Fed Reserve reported
continued slowing economic activity especially in housing
and automotive sectors.
The outlook for an end to the recession and economic
turnaround remains unclear. Global economies continue to
decline. Europe is expected to be down 3% to 4% in GNP.
Japan is expected to see a 5% decline in economic activity.
Only China and India are expected to have positive growth
with their economies expecting to grow in the 5% to 6%
range. This lack of Global growth denotes no help from
exports to spur new economic growth.
In the U.S. key factors to drive new growth remain
difficult. Credit growth remains an enigma. With more than
$1 trillion in increased liquidity and $700 billion in
guarantees, credit remains tight. The Libor spread which was
at .2 in January has increased to 1.3 in February. Anything
above .75 indicates a credit tightening between banks.
Housing starts and new permits fell to a 30 year low in
February. Housing starts annualized at 521,000. New home
permits annualized at 466,000. Both would be in the
1,000,000 range in an improving or normal economy. New car
sales in February annualized at approximately 9,000,000
units. An improving economy would need a 14,000,000
annualized rate. This is the lowest level of new car sales
in 27 years. All home sales remain at a 4,500,000 annualized
rate. This is what would be expected in a normal economy.
Unfortunately, many of these are foreclosures or distressed
sales. The average price of a home sold continues to
decline. The average approached $200,000. In a normal
economy the price should exceed $250,000 to eliminate the
need for banks to increase reserves.
The impact on trucking has been devastating. New truck
orders for February were under 6200 units. Industry experts
expect new truck orders to annualize between 110,000 to
120,000 units. OEM’s have adjusted accordingly with plant
closures and layoffs. All have initiated a program of
shutting down operating plants on a “weeks down” basis.
Truck freight is off over 10% and is expected to continue to
decline until there is an upturn in the housing and
The bright spot on the horizon is the recently released
economic stimulus package. One hundred billion is being
released to construction and infrastructure projects. This
should drive demand for work trucks at both the private and
governmental level. Additionally it should help stem job
losses. The total impact of the package is unclear as nearly
two thirds has gone to pay unemployment claims and Medicare
and Medicaid programs.
Many economists are projecting a turnaround in the U.S. and
Canada to begin in September or October. It is our opinion
that with the intractable nature of the credit issues, and
issues in housing and automotive that no significant
improvement will be seen before 2010.
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