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Heavy Duty Truck & Trailer Executive Summary


The U.S. and Canadian Economies continue to show their resiliency as they move up from the bottom of the trough which was established January through March of this year. Almost all major elements of the economy began to show improvement from banking to housing and autos. The most positive sign has been the upturn in consumer confidence and consumer spending.

The institute of Supply Managementís key Purchasing Managerís Index (PMI) for manufacturing showed its biggest gain in several years moving from 36.3 to 40.1. The index needs to exceed 42 to show a growing economy and 50 to show manufacturing improvement, but it is trending up for the first time since May of 2008. Jobless claims were significantly below 600,000 for the first time since September 2008. We still expect unemployment to approach 10% by the end of this recession from the current 8.9%. Manufacturerís inventories and retail inventories are assessed at being to low for this period in the cycle and this should lead to hiring of new employees as early as the 4th quarter of 2009.
The banks following the government stress test are in better shape than expected which should continue to allow them to ease lending. Additionally, new car sales have exceeded 10.5 million annualized. It appears that both GM and Chrysler will be effectively reorganized by the government without any further significant disruptions in their workforces or supply base.

The key elements we track monthly have continued to strengthen. Home sales new and used have begun to improve as the index of pending home sales rose 3% in March. This is the second month in a row of positive growth. The average price of a new home sold approximated $200,000 which is down from $250,000 in a healthy market. The average price of existing homes rose from $169,000 to $175,000. This is still below the $200,000 average in a healthy market. LIBOR continued to range from .27 to .42, well below the .75 ceiling showing a strong interbank lending activity. In summary we believe we have begun globally to move up off the bottom.

Trucking remains mired in the recession. Most OEMís reported more than 90% declines in year over year first quarter profitability and several reported significant losses. Most are expecting class 8 production in North America to range from 100,000 to 130,000 units. Major fleets are showing slight profitability to slight losses as reduced fuel and labor costs have helped financial performance and reduced bankruptcies. Short term, there will continue to be financial pain for carriers as the 4.5% improvement in January through March was wiped out in April. A positive sign is the pick up in new non residential construction of 2.7%. This indicates the government stimulus program may be working. It is our belief that there will be no improvement in trucking until 2010.

Overall the economies in North America and globally are showing signs of climbing out of the recession. It will be a long climb as housing, autos and export/imports are off by nearly 50% and will take time to recover. Real economic growth may not occur until the first quarter of 2010.

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