Heavy Duty Truck & Trailer
The Economy continued to show
positive growth across several areas in May. Both the
manufacturing and non manufacturing sectors continued to show
strong expansion. The overall economy grew for the 13th
consecutive month. The Purchasing Manager’s Manufacturing index
ended at 59.7 and the Non Manufacturing index at 55.4. Any index
above 50 indicates sector expansion. Of significant positive
news for the first time since the recession began the Non
Manufacturing Index showed positive employment growth. This is
significant because 80% of employment is in the nonmanufacturing
sector. Manufacturing continued to be driven by new orders,
exports and inventory rebuilding. Non manufacturing was driven
by business activity, inventories and order backlog. Overall GDP
for the first quarter was 3.0% down from 5.6% for the 4th
Quarter of 2009.
Major factors driving the economy remain mixed. Sales of new and
existing homes rose in April to 6.2 million units annualized.
This is significantly above the five million homes in a normal
economy. Median price of an existing home sold was $173,000 well
below the $200,000 price range in a normal economy. Months’
supply of existing homes was 8.5 months. Median price of a new
home sold was $198,400 well below the $250,000 median price in a
normal market. Months of inventory on hand fell to 5 months.
Thirty-three percent of all homes sold were distressed sales.
New home permits fell 11% to 606,000 while new home start were
annualizing at 679,000. Both numbers would approach 1,000,000 in
a normal economy. New home completions approached 769,000
annualized. This continued to add to the glut of
unsold homes. Early results from home sales for May show a 42%
decline from April. This is primarily due to the end of Federal
subsidies in April. Infrastructure and commercial real estate
construction remains depressed and is off nearly $200 billion
from the same period in 2009. The major reasons include an
overbuilt commercial real estate industry and lack of state
funding for infrastructural development. Construction overall
remains a major drag on the economy.
Auto sales remained a bright spot
annualizing at 11.7 million units in May. This is up 22% from
the same period in 2009. This improvement had greatly helped
NAFTA trade and freight with Canada and Mexico. Vehicle sales
growth has continued for 8 months but is still well below the
14,000,000 units annualized in a normal market.
LIBOR even with the credit crisis
in Europe remains stable at 35 basis points. This is well below
the 75 basis points of a tightening credit market. Business
borrowing has shown signs of improvement the last few months.
Residential mortgage market credit requirements for home loans
have also improved. Banks are approving loans with slightly
riskier credit scores and at rates as low as 4.75% for a 30yr
Overall the economy in North
America continues to improve but the pace is slowing. For the
first time in nearly a year the Conference Board’s index of
leading economic indicators declined led by a downturn in
building permits and unemployment. Both the lagging and
coincident continued to improve driven by industrial production
and an improved lending environment. The balances between these
indicators suggest continued economic improvement but a moderate
pace. The major drags on the North American economy remains
unemployment, the housing downturn, consumer
confidence, the European economic crisis and the political
crises in the Middle East and the Korean Peninsula.
Trucking’s recovery is exceeding
the rate of the overall economy and is again proving to be a
leading indicator of improvement. Ton miles have improved 6%
over the last six months. Equally important the number of
shipments have improved over 9% according to the Cass Index.
Fleets, especially full truckload, have reported generally
improving conditions and the ability to gain some rate
increases. To supplement their capacity fleets continue to
in-service the last of their parked units and buy low mileage
used trucks. They are continuing to avoid the purchase of new
trucks as long as possible.
Net orders for new trucks have
shown signs of improvement. Annualized order rates for new class
8 trucks reached 155,000 through May. This demonstrates that
fleets may selectively begin ordering some new units. Previous
annualized order rates were in the 130,000 to 140,000 range.
OEM’s are also reporting cautious
improvement. First quarter parts sales were up 25% over the
prior year. Dealers are reporting significantly improved used
truck sales and prices. They are currently reporting a shortage
of low mileage used units. All trends are leading to a stronger
fourth quarter class 8 build and sales. It is our belief if
current trends continue the full year build could exceed 150,000
units with strong 4th quarter production.
Overall our belief remains that
the North American economy is improving but a moderate pace. The
depth of the overall economic dislocation leads us to predict
that full recovery may not occur before 2012-2013.
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