Heavy Duty Truck & Trailer
The U.S. and Canadian economies
continued to improve in March. Both the manufacturing and
non-manufacturing sectors showed growth. The manufacturing
sector showed growth for the eleventh consecutive month reaching
a level of 59.6. This is a 3.1 point improvement over February
and the highest level since 2004. The non-manufacturing economy
grew for the third straight month reaching 55.4 up 2.4 points
over February levels. The major factors driving both indexes
were new orders, business activity and order backlog.
Employment improvement also contributed but not significantly.
Positive signs included businesses’ willingness to increase
inventories and fill open positions. The good news of these
growing indexes does not suggest a rapidly improving economy.
Although it appears that the economy added 125,000 new jobs,
analysis shows that only 30,000 were permanent. Nearly 95,000
were jobs associated with taking the census and temporary
workers. Companies are adding few full time permanent positions
and unemployment remains at 9.7%.
The other major factors needed to drive the economy, housing and
auto sales, continue to be stimulus and incentive driven showing
little sustainability. New home sales continue to fall. February
sales annualized at 308,000 down slightly from January but down
almost 13% from the same period in 2009. The median price of a
new home sold was $212,000 well below the $250,000 of a normal
market. At current inventory levels there is a 9.2 month supply.
Existing home sales continued to stay strong annualizing at 5.2
million units. Sales are being driven by Government incentives
and the high availability of financially distressed homes.
Nearly 35% of all home sales continue to be short sale or
foreclosed housing. The median price of an existing home came in
at $165,000 well below the $200,000 in a normal market. At
current inventory levels there is an 8.6 month supply.
Government agencies estimate there may be more than 5,000,000
homes still to go through foreclosure or short sale. This
presupposes any short term turnaround for housing. New home
permits and starts annualized at 612,000 and 575,000
respectively. At 700,000 units annualized, home completions
continued to show that new home starts and completions are
coming into balance. All of these numbers would annualize at
1,000,000 units in a normal economy.
The Conference Boards’ leading and coincident indicators
continued to improve but at less than half the rate of the 4th
quarter of 2009. Improving manufacturing production,
inventories, backlogs and the high money supply continue to
drive the improvement. Major drags remain consumer confidence,
the lending environment and unemployment. Consumer confidence
improved 4% to an index of 50. This is still well below the
index level of 90 that is evident in a strong economy. Consumers
continue to believe that the economy is bad and may worsen.
Unemployment is still at 9.7% and shows little sign of being
less than 9.0% by the end of the year. Most importantly the
non-manufacturing sector continues to shed employees but at
slower pace. The lending environment remains difficult. LIBOR
remains below 30 basis points, but only major corporations can
get reasonably priced debt either through the bond market or
direct borrowing from lenders.
The North American trucking industry continues to show
improvement on the freight side. Both the ATA and the Cass index
showed freight growth in February of 2.5% to 3.0%. Some shippers
have begun to see problems moving freight in the broker market,
especially in the flat bed carriage sector. Many fleets begin to
believe that freight rates may begin to move up in the second
half. Capacity is rapidly moving in line with demand as trucks
parked are moving “off the fence” and returning to service after
repair. Some fleets are bidding higher prices for high quality
used trucks. Although demand is increasing most fleets continue
to predict that they will buy few if any new trucks this year.
OEM’s and fleets estimate that the market for new built trucks
will be between 120,000 to 130,000 units. OEM’s report monthly
orders were approximately 10,000 vehicles in the first quarter.
Many report they are adjusting build rates down now that they
have built all of their pre-2010 emission change trucks. Most
report a strong pick up in parts and service sales, some more
than 20%. OEM’s overall outlook is for build rates in North
America to aggregate at 10,000 units per month through December.
Overall the North American
economy is showing improvement. The changes are positive but
slow. Housing, autos and lending must all see significant
improvement before we will see real job creation and consumer
confidence improvement. Both of these elements need to improve
before we will see a strong outlook and sustained economic
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