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Heavy Duty Truck & Trailer Executive Summary

The overall economy remains stronger than indicated by media reports.  Through August the economy has increased for Eighty-two straight months.  Second quarter GDP grew 3.3% up from the previously reported 1.9%.  Worker productivity increased 4.3% significantly above the 2.5% that was predicted.  Also the Institute of Supply Management (ISM) Purchasing Managers Index (PMI) showed an expanding non-manufacturing economy and a flat manufacturing sector neither contracting nor expanding.  Exports and capital spending continue to drive the economy.  Leading indicator as reported by the Conference Board declined slightly, but coincident and lagging economic indicators showed slight growth.  Overall the economy can best be summarized by reports from the twelve Districts of the Federal Reserve.  In general, the belief is that the economy is soft and maybe nearing the bottom of the cycle.  Those factors driving the economy such as housing, credit availability and automotive sales are showing early signs of a turn around.  New home sales continue to decline but existing home sales are showing signs of improvement nationally.  Credit availability has stabilized but remains difficult for borrowers to qualify.  Automotive sales in August recovered from an annualized bottom of fewer than thirteen million units to an annualized sale of thirteen point five million units.  A healthy market is sixteen million units.  The general consensus is for a slow recovery, possibly stretching into the second half of 2009. 

Trucking remained in its current malaise.  There is still excess capacity in the LTL area but capacity in the full truckload sector is tightening.  Fleet size reductions of 10% to 15% by large carriers and the elimination of 4.5% of the fleet due to trucking company failures, in the first half, has nearly balanced supply and demand in this segment.  The outlook based on the economy is for continued flat freight demand with no typical pick up that normally occurs in the autumn of the year.  Factors that will aid trucking profitability include the recent decline in oil pricing and a more stable credit environment.  Any real increase, in truck ton miles with the reduced capacity in the full truckload segment, could help these companies increase pricing.   

The outlook remains for a slow steady recovery.  The prediction for class 8 truck production tends to follow the slow steady recovery estimate.  Fleets are expecting no pre-buy to off set the 2010 emission changes and will gradually add new trucks on increased freight demand.  The estimate is for demand for new trucks to remain at current levels through the first quarter of 2009.  We remain cautiously optimistic that OEM truck production will recover in the middle of 2009. 

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