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Heavy Duty Truck & Trailer Executive Summary


July economic numbers continued to signal an economic recovery sometime later this year. The closely watched ISM Purchasing Manager’s Index rose to 48.9, a 4.1 point improvement from June. An index of 50 or greater indicates a growing manufacturing economy and an index consistently above 42 indicates a growing GNP. Overall the index indicates a return to growth fairly soon. Of great concern is the Non Manufacturing Index which fell to 46.4 from 47. This indicates a greater contraction month over month. A major concern is that nearly 80% of all jobs are in this sector.
There is growing concern in many places that this may be a jobless recovery. Even the Presidential administration believes unemployment will reach 10% before it begins to decline sometime in 2010. The Conference Board’s Leading Economic Indicators rose for the 3rd straight month. They have increased 2% versus December 2008. Coincident indicators are balanced and lagging indicators continue to decline indicating overall a turnaround but lengthened in duration of recovery.

Key factors that will drive improvement also continue to get better. All housing sales annualized, improved to 5.27 million units. This is up over 100,000 units from June and housing sales have improved for seven consecutive months. Average housing prices remain depressed at approximately $185,000. Homes prices need to average $250  thousand to begin to show equity build and eliminate higher bank loss reserves. New housing starts and permits remain in balance at 568,000 permits and 582,000 starts. New single family completions were at 818,000 with most of the overbuild in condominiums. The month’s supply of new homes fell to 9.4 from 9.8 for existing homes and 8.8 for new homes from 10.2. A normal market would see 1 million new home
starts, builds, and completions. Automobile sales improved significantly in July to 11million units annualized. This is up from 9.6 million in June. This significant uptick has been partially due to the “Cash for Clunkers “ program that implemented in July. A normal market is 14 million units. Finally LIBOR spread for one month remains a .28/.29. Anything under .75 indicates a robust banking environment. Overall the economy is improving but it still indicates that it will be a long steep climb out. It may be late 2010 before we see any real job recovery.

Trucking continues to suffer the brunt of the economic downturn. Freight is off almost 14% from 12 months ago. Fleets, although aggressively right sizing, still have excess capacity and no where to turn to alleviate it. The global used truck market is nonexistent forcing fleets to park their excess trucks. This factor has not only hurt new truck sales at the OEM but also aftermarket parts and service sales. Heavy duty OEM’s now forecast an annualized sales of new class 8 trucks of 93,000 units. This is the lowest level since 1981. The outlook for 2010 is not much better with industry experts expecting sales of 110,000 to 140,000 units. We concur with these estimates as there is
little outlook that would project a rapid increase in freight or construction that drive the

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