Newsletter Archive

Heavy Duty Truck & Trailer Executive Summary

Concerns for a double dip recession over the last few months have greatly dissipated.
Key factors such as auto and home sales have begun to rebound from a summer
downturn. Overall freight movement in North America by all modes continues to
grow. Unemployment at 9.6% and consumer confidence below 50% continue to
restrain more rapid economic improvement.

Strength in the U.S. economy shown by the Institute of Supply Management (ISM)
Purchasing Manager’s manufacturing index remains robust. The index at 54.4
indicated sector expansion for the 14th consecutive month. Employment continues to
improve, new orders though down in August remain strong and retailers continue to
add inventory.

The PMI non-manufacturing index continues to support economic expansion. This
index at 53.2 is up 1.7 points from July. This is eight consecutive months of growth in
this sector. Key factors driving this sector were employment and business activity.
Most respondents in this sector say that customers are ordering and buying services
but are continuing to show constraint. Any number above 50 in this index indicates
economic growth.

The Conference Board’s economic indicators all continue to predict growth but at a
slower pace. The leading economic indicators (LEI) have shown growth for 17
months. The group of indicators led by increasing average work week, interest rate
spread, improving stock market and building permits has been slowed by persistent
unemployment. From January to August the predicted economic growth rate has
fallen from 10% to 4%. This same direction is evidenced in the coincident (CEI) and
lagging indicators. Both showed improvement but at a slower pace. The main factors
curtailing improvement remain unemployment and consumer confidence.
Employment continues to improve in the private sector with 64,000 jobs added in
September. This was offset by 155,000 layoffs in the public sector. The average work
week at 41.2 hours indicates that there is pent up demand in the private sector for
additional employment. This is being offset by current economic and political
concerns. To begin overall improvement in our unemployment numbers the private
sector would need to add about 225,000 new jobs per month.

Consumer confidence at 48% is the lowest since February. Although consumer
spending was about $5 billion higher in September this was more than offset by
consumer outlook with more than half of those surveyed saying business is bad and
getting worse. The key factors needed to give the economy strong growth incentive
still remain depressed. Housing remains depressed and showing few signs of a
turnaround. New home sales annualized at 288,000 units down 30% below prior year
and 72% below a normal market. Prices remained depressed with a median sale price
of $204,000 well below the $250,000 median in a normal market. At current sales rates
there is an 8.6 month supply of new homes. Existing home sales are also down
versus prior year by 19%. Existing home sales annualized at 4.13 million units.
Median sale price was $178,000 well below the $200,000 in a normal market.

There is an 11.6 month supply at the current sales rate. Combined new and existing home
sales would exceed 5,000,000 units annually in a normal market. Approximately 34%
of all home sales are ‘short’ sale and foreclosures. The outlook for housing is
improving. New home permits annualized at 569,000 in August and housing starts
annualized at 598,000 units up 2.2% from 2009. Housing completion annualized at
603,000 in line with starts.

Auto sales rebounded in September annualizing at 12.2 million the highest level since
mid 2008. Almost all makers saw improvement with the greatest level attained by U.S.
automakers. For perspective this is still well below the 14 million units in a normal
market.

Credit for business remains mixed with markets open for large corporations and tight
for small businesses. LIBOR remains at 25 basis points showing good flow between
lenders. Private lending is improving for motor vehicles but remains difficult for other
consumer lending.

All type of commercial construction remains depressed. Current volume is at $8.1
billion annualized. This is down 10% from prior year and off over 20% in a normal
economy. This will continue to impact sales of day cab and construction trucks.

Trucking continues to be a bright sport in the economy. Freight has increased by
8.5% year to date over 2009. Freight rates have improved for 9 consecutive months
and carriers generally are reporting improved revenue and earnings. Used truck
values have improved from $30,000/ average class 8 truck to near $40,000. Prices are
expected to peak in 2011 at $45,000. All of the indexes continue to show
improvement. The Cass index related to number of shipments is up 15.5% year to
date. More important the Cass value index of a bill of loading is up nearly 30%. The
Transcore spot index of brokered shipments is up 69% year over year. This is down
from a rate of 122% in July. All sectors (refrigerated, dry van, and flat bed) are
benefitting. The UCLA/Ceridian Pulse of Commerce index is up 6%. This looks at a
broad range of freight indicators. All these factors have led to a strong rebound for
new truck orders. September new truck orders reached 15,200 units; 6000 of these
are for 4th quarter build. The final quarter build for 2010 is expected to annualize
160,000 units with full year production of 150,000 class 8. The outlook for 2011
remains murky as the economic downturn persists. Current ACT projections are for a
build of 240,000 class 8. If the economy does not improve faster in the first quarter
2011 the build could drop to 200,000 units.

The economy is still recovering but to slow to have any meaningful impact on
unemployment. Most companies will wait until after the November elections to
determine if they should add employees.

If you would like to read the rest of this article contact steve.caudill@businessperspectives.net.

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