Newsletter Archive

Heavy Duty Truck & Trailer Executive Summary

Overall the economies in the U.S. and Canada continued to improve in June. Key indicators
and indexes showed broad based growth although at a slower pace than the fourth Quarter
2009 and the first Quarter 2010. GDP appears to have increased at a rate of 2.5% in the
second Quarter down from 3.0% in the first Quarter and 5.6% in the fourth Quarter 2009. A
2.5% GDP growth is not enough to stimulate job growth and further evidencing a jobless
recovery. Major detractors from economic growth continue to be unemployment currently at
9.5% in the U.S. and consumer confidence measured by the Conference Board at 52%. A
strong economy would see the consumer confidence at 90%.

The June Purchasing Manager’s manufacturing index (PMI) showed continued strong
manufacturing expansion at 56.2. This is down from 59.7 in May but still indicating strong
growth at a slightly slower pace. This is the eleventh consecutive month of continued
growth. Manufacturing added 22,000 jobs in June. The Non Manufacturing index (NMI) also
showed growth at 53.8 down from 55.4 in June. This sector is also continuing its strong
performance but also at a slower pace. Employment in this sector was flat. Overall the nonfarm
and non-governmental sectors added 83,000 jobs in June.

The Conference Boards Composite of Economic Indicators (CEI) continues to show overall
economic grow. The Leading Economic Indicators (LEI) have shown strengthening for over
a year now. The index has moved from 100.2 in May 2009 to 109.9 in May 2010. Housing
and unemployment continue to be the major drag in this index. Conference Board
Coincident indicators also remain positive. The index is up 1.3 points in the last year. The
index has been positive for the last six months driven by industrial production, industrial
employment and worker’s income. Lagging indicators are showing early signs of
improvement. Early positive contributors are labor cost per unit and a stable CPI for
services. Overall the indicators predict continuing economic recovery but possibly at a
slower pace than predicted three to six months earlier.

The factors driving a slower recovery remain housing, commercial construction, auto sales,
consumer confidence and the general credit environment. New home sales slowed
dramatically since the end of the government stimulus program in April. New home sales
annualized at a rate of 300,000 units through May. The median price was $200,000. In a
healthy market new home sales would annualize at a rate of nearly 1,000,000 and median
price would be $250,000. There is currently an 8.5 month supply of new homes. Predictors
of improvement in this area are new housing permits, starts and completions. After
annualizing over 650,000 earlier in the year new home permits have fallen to 574,000 in
May. New home starts have also annualized at nearly 650,000 earlier but fell to an annual
rate of 593,000. New home completions annualized at 687,000 down from nearly 800,000
earlier in the year. In a normal market all of these numbers would annualize at 1,000,000
units.

The Bright spot in housing is existing home sales. They annualized at 5.66 million in May
down only 2.2% from April when the government incentives stopped. Prices remain
depressed at a median price of $179,000. This would be near $200,000 in a normal market.
There is currently an 8.3 month supply. Nearly 35% of the homes sold in this segment
remain distressed sales.

Auto sales remain improved over 2009. June sales annualized at 11.1 million units. This is
up from 9.6 million in June of 2009. Although this has helped both manufacturing and
employment this is still well below the 14 million units in a normal economy.
Non residential construction continues to lag the economy. In May it annualized $842 billion
8% below where it was in May 2009. Lack of commercial demand, financing and reduced
governmental funding continued to be a drag on this sector.
Credit markets, both mortgage and business, continue to improve but remain tight even for
qualified borrowers. LIBOR at thirty five basis points remains well within range for an open
lending environment.

The outlook for trucking at all levels remains positive and growing. May saw a slight decline
in tonnage but overall freight is up 8.5% versus prior year. The Cass index in May showed
both an increase in shipments but also the value of each shipment. Fleets report an
excellent freight demand environment with shortage of capacity in flat bed and refrigerated
carriage. Brokers report the highest level of spot freight in ten years. High freight demand
has lead to fleets ordering new trucks; many for delivery in the third quarter. ACT reported
13,231 orders for May annualizing to a full year order rate of 160+ thousand units. Based on
orders most OEMs, lead by Freightliner, have announced significant build rate increases.
Other OEM’s are also scaling up for increased build rates. Heavy truck and trailer OEMs
continue to report improved parts sales up nearly 20% through May. Used trucks especially
2006 and 2007 models are now in short supply. The recovery for trucking overall is now in
full swing.

Overall the economy continues to improve on a broad scale. The pace of the recovery is
slowing due to several factors previously discussed. Consumer confidence and employment
need to improve significantly before the pace of the recovery can increase.

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

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