Newsletter Archive

Heavy Duty Truck & Trailer Executive Summary
 

 

The U.S. and Canadian economies continued to decline in February. The only positive conclusions that can be drawn are that rate of decline has slowed. The ISM Purchasing Manager’s Index for Manufacturing was 35.8 up .3 from January. This indicates that manufacturing continues to remain depressed and that GDP continues to contract. Any number below 42 indicates a contraction in the overall economy and a number below 50 indicates a contraction in manufacturing. The non-manufacturing index was 41.6 again any number below 50 indicates contraction in this area. All sectors in the economy have shown contraction except for food and low-end retail such as Wal-Mart which have remained strong.

The Conference Board’s index of economic indicators remained mixed. Leading indicators showed a slight improvement driven by continued liquidity from an increasing money supply. Coincident and Lagging indicators declined driven by increased unemployment and a decline in general economic activity in the manufacturing and non-manufacturing sectors. All twelve regions monitored by the Fed Reserve reported continued slowing economic activity especially in housing and automotive sectors.

The outlook for an end to the recession and economic turnaround remains unclear. Global economies continue to decline. Europe is expected to be down 3% to 4% in GNP. Japan is expected to see a 5% decline in economic activity. Only China and India are expected to have positive growth with their economies expecting to grow in the 5% to 6% range. This lack of Global growth denotes no help from exports to spur new economic growth.

In the U.S. key factors to drive new growth remain difficult. Credit growth remains an enigma. With more than $1 trillion in increased liquidity and $700 billion in guarantees, credit remains tight. The Libor spread which was at .2 in January has increased to 1.3 in February. Anything above .75 indicates a credit tightening between banks. Housing starts and new permits fell to a 30 year low in February. Housing starts annualized at 521,000. New home permits annualized at 466,000. Both would be in the 1,000,000 range in an improving or normal economy. New car sales in February annualized at approximately 9,000,000 units. An improving economy would need a 14,000,000 annualized rate. This is the lowest level of new car sales in 27 years. All home sales remain at a 4,500,000 annualized rate. This is what would be expected in a normal economy. Unfortunately, many of these are foreclosures or distressed sales. The average price of a home sold continues to decline. The average approached $200,000. In a normal economy the price should exceed $250,000 to eliminate the need for banks to increase reserves.

The impact on trucking has been devastating. New truck orders for February were under 6200 units. Industry experts expect new truck orders to annualize between 110,000 to 120,000 units. OEM’s have adjusted accordingly with plant closures and layoffs. All have initiated a program of shutting down operating plants on a “weeks down” basis. Truck freight is off over 10% and is expected to continue to decline until there is an upturn in the housing and automotive markets.
The bright spot on the horizon is the recently released economic stimulus package. One hundred billion is being released to construction and infrastructure projects. This should drive demand for work trucks at both the private and governmental level. Additionally it should help stem job losses. The total impact of the package is unclear as nearly two thirds has gone to pay unemployment claims and Medicare and Medicaid programs.

Many economists are projecting a turnaround in the U.S. and Canada to begin in September or October. It is our opinion that with the intractable nature of the credit issues, and issues in housing and automotive that no significant improvement will be seen before 2010.
 

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

This summary is offered for information only. It is compiled from several governmental and industry resources. The origin of the information is given where possible. Any actions taken as a result of this summary is the sole responsibility of the readers. Business Perspectives takes no liability for the use of the information above its informational use. The opinions expressed are the sole property of Business Perspectives LLC and should not be redistributed or duplicated.