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Heavy Duty Truck & Trailer Executive Summary

The economy improved broadly in April. Almost every sector showed signs of recovery. Only employment continued to show lack of improvement. Even though over 100,000 permanent jobs were added unemployment rose from 9.7% to 9.9% as more people were looking for work. Employment in both the manufacturing and non-manufacturing sectors improved; both showing expansion for the first time since the recession started. The public employee sector specifically state and local employment was the only area continuing to show significant retrenchment.

Both the manufacturing and non-manufacturing sectors of the economy according to the Institute of Supply Management’s Purchasing Managers Index (PMI) showed continued strong expansion. The manufacturing index was 60.4 up .8% from March. An expanding economy is anything above 50. This is the ninth successive month of growth. The continued strength came from new orders up 4.2%, production up 5.8% and employment up 3.4% from March. The average factory work week reached 41 hours continuing 12 straight months of improvement. Capacity utilization reached 73.2% up from 69.2% at the bottom of the recession. A normal economy would expect factory utilization to be above 81%. The improvement in the non manufacturing economy was driven by business activity up 5.2%, new orders up 7.3% and employment up 12.2% since March. This is the third straight month of expansion in the index. The Conference Board’s index of leading, coincident and lagging indicators all showed improvement in March. The leading economic indicators have shown improvement for 12 months. The leading index improved 1.4% and was driven by average weekly manufacturing hours, vendor performance, stock prices, building permits and new orders, among other factors. The coincident indicators improved to 100.2 or .2%; lead by employment, personal income and industrial production. This is the ninth consecutive month of improvement. This indicator is still below the index of 104 seen at the beginning of the recession. The lagging economic indicators improved the first time since the recession began increasing from 107.7 to 107.9 or .2%. This still remains significantly below the index of 115 seen at the start of the recession. Major contributors to the improvement included commercial and industrial loans outstanding and labor cost per unit of output. The largest drags remain the average duration of unemployment followed by consumer debt versus income.

Credit, Consumer confidence, along with automobiles sales and housing, key factors driving the economy, have shown improvement. Even with these gains the sectors need significant recovery before we see a major employment resurgence. Auto sales in April annualized at 11.2 million units. Although this is up over 15% above a year ago, it needs to return to 14 million units annualized which is normal in a strong economy. Sales of existing homes also remain strong at 4.58 million units annualized. New home sales remained distressed at 411,000 units, well below the 1,000,000 homes in a normal market. Combined in a normal market these numbers need to exceed 4,000,000. The median sale price of an existing home was $170,000. This would be $200,000 in a normal market. The median price of a new home was $210,000. This should exceed $250,000 in a normal market. The low sales prices continue to depress new home loan availability and force banks to keep excess reserves. New home permits, starts, and completions came into balance for the first time since the recession began. New home permits annualized at 685,000 up 7.5% from the prior month and 174,000 from the low earlier in the recession. Housing starts annualized at 626,000 up 1.6% from the prior month and up over 25% from the bottom of the recession. New home completion annualized at 656,000 units. This is the first time since the recession began that permits starts and completions have come into balance stopping the continuing glut of new homes entering the market. This is a significant improvement over the 833,000 home completions annualized rate of a year ago. These numbers are still well below the 1,000,000 units of permits and starts one would expect in a normal market and represents an eight month supply of existing homes and a 6.7 month supply of new homes at existing sales rates. A normal market would expect 90 to 120 days supply. The other major concern about housing is the end of government purchase incentives at the end of April. Many experts predict that without additional sales support housing sales could lapse back into a deep decline further exacerbating housing’s impact on the economic recovery.

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