Newsletter Archive

Heavy Duty Truck & Trailer Executive Summary
 

The U.S. and Canadian signs of economic recovery remained positive during June. Again the improvement in the rate of decline led the cause for optimism. The Conference Board’s index for leading indicators showed their fourth consecutive month of growth. The leading factors were the decline in
manufacturers’ inventories, increase in durable and non durable good’s orders, income versus transfer payments and the money supply. Coincident indicators have also improved for the last two months. Only laggings indicators continued to show decline. They were led by the unemployment numbers and
industrial production.

The Institute of Supply Management’s Purchasing Manager Index for manufacturing also continued to improve. It rose from 42.8 to 44.8 continuing to forecast an improving GNP. Because the index remains below 50 it continues to show a contracting manufacturing sector. Key factors driving the improvement
were lower manufacturers’ inventories and orders for new durable and non durable goods. Also of positive note is the continuing improvement in the non-manufacturing sector. The index showed a major improvement from 44 to 47. Although the sector is still contracting it is approaching expansion
indicated by an index of 50. Improvement in this sector is key to ending a recession as nearly 85% of all jobs are in this sector. Loss of jobs remains the major drag in the economy as unemployment reached 9.5% in June. There could be a technical end to the recession by late summer or early autumn but
unemployment could continue to increase possibly reaching 10.4% to 10.5% before it begins to improve.

Major factors needed to improve the economy (housing and auto sales) remain depressed. New car sales remain depressed at 9.7 million units annualized. Sales need to improve to an annualized level of 14 million units before we see a healthy economy. New and used home sales are now annualizing over
5,000,000 units showing a strengthening in this area. Unfortunately the majority of existing home sales are houses in foreclosure or short sale and prices remain depressed. Existing home prices averaged $173,000 but need to exceed a $200,000 average to indicate a healthy economy. New home average
sales price reached $221,000. This needs to exceed $250,000 to indicate a healthy market. Homes with sales pending improved again in May by 2% indicating positive sales momentum. New housing starts, permits and completions remain in balance at approximately 520,000 units. These numbers in a healthy economy would annualize at approximately one million units in each area. The current inventory of existing homes for sale is at 9.6 months and 10.2 months for new homes. Bank LIBOR rates remain at .32 to .35. Anything below .75 indicates that credit is improving within the banking community and with
key borrowers.

The trucking industry remains severely depressed. Although freight improved over 4% in May it has not recovered from the 6.7% decline in March and April. Carriers remain in a contraction mode dealing with increasing costs for diesel and excess capacity. More than ample equipment exists to cover any
significant upturn in freight. New truck purchases at the carrier level remain non-existent because of capacity, lack of credit and a collapsed used truck market. Due to lack of demand OEM’s continue to take survival actions to deal with the lack of orders. Many have consolidated operations, continued
down weeks and delayed engine and product programs. Best current estimates are that North American class 8 production will not reach 100,000 units making this the worst market since 1981. There is a strong consensus forming that 2010 may now reach only 135,000 units ending below 2008 production.
Many economists see no significant new truck build until 2011.

It is our opinion that we will see a technical end to the current recession by the end of the year. We also believe the recovery will be longer and more painful than previously estimated. Any real pick up including employment may not occur until late 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.