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Heavy Duty Truck & Trailer Executive Summary

The overall economy continued to grow through April completing the seventy-ninth month of increased economic activity. The U.S. GNP grew at a rate of .9% primarily driven by exports, NAFTA activity and the non-manufacturing economy. The leading economic indicators improved for the 2nd month with leading and lagging indicators showing .1% improvement according to the Conference Board. The manufacturing economy showed improvement with the ISM Purchasing Manager’s Index improving from 48.6 to 49.6. This was primarily driven by increased production as new orders, employment and inventories continue to contract. The trend with the index below the growth level of 50 is for continued contraction. This sector continues to be impacted by tight credit, escalating commodity costs, new material costs, and a severe decline in consumer confidence. The overall outlook is for continued modest growth, but possibly less than expected previously for the 2nd half of the year.
The Canadian economy appears to be moving for a deeper downturn than the U.S. The U.S./Canadian housing slump and the severe fall-off in domestic automotive production have especially curtailed manufacturing activity in Eastern Canada. Competitiveness has been further exasperated by the strong Canadian dollar. Consumer goods and manufactured imports from the U.S. greatly exceed exports from Canada significantly reducing manufacturing activity and trucking volumes moving to the U.S.
The trucking industry, from OEM truck makers to shippers, remains in a state of flux. Class 8 orders improved to 20,000 plus units in April after a two month decline. Many of these orders will have no immediate impact as they were placed by fleets to hold ‘09 build slots. Truck ton miles continued to decline versus ‘07 all be it modestly. Large truckload carriers are reporting a pick up in freight and fleet utilization due to their own downsizing and the high number of small fleet and owner operator failure in the 2nd half of ‘07 and the 1st quarter of ‘08. Carrier profitability continues to be impacted by rising fuel costs and their lack of ability for cost recovery. Many fleet owners appear more optimistic due to less availability of capacity allowing them to begin to raise rates in the 2nd half of the year. Increased rates are already being seen in the refrigerated sector.
The general consensus on the economy and business activity in the 2nd half is for continued modest improvement, but not the strong upturn forecast earlier in the year. There is very little support from economic forecasters for a recession. The economy has survived through high oil prices, the housing downturn, the credit crisis and an automotive downturn. Actions taken by the Federal Reserve and continued high exports have carried the economy. The strength in the 2nd half will be driven by the impact of the $190 billion economic stimulus and what happens with oil and raw material prices. It is our belief that trucking generally will see no real improvement until the 1st quarter of ‘09.

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