Spot market oceans rates rose sharply last few week, with west-coast rates up 19% and east coast rates up 8%. There has been significant week-to-week volatility as rates had declined in each of the previous two weeks, but the increase in east-coast spot market rates in the last 6 months is significant. The major shipping lines continue to have greater pricing power to east coast ports than west coast ports as the spread between east and west-coast ports remains large. The Shanghai Containerized Freight Index (SCFI) for west coast ports was $2,259 per FEU and to east coast ports was $4,363 on December 12. Prior-year comparisons highlight the pricing disparity between the coasts as west-coast rates are up $559 (33%) over 2013 and east-coast rates are up $1,401 (47%). The disparity between the coasts had been fairly consistent in the first half of the year, but spot prices to the east coast spiked as volumes have risen due to both peak-season shipping and diversions from west coast ports. The SCFI reflects spot market rates for the Shanghai export container transportation market.
Weekly retail on-highway U.S. diesel prices fell 11.6 cents to $3.419 per gallon on December 15th, the lowest price since January 2011. Diesel declined or remained constant in every week between June 30 and November 3 of this year, and after a one-week uptick has resumed its fall. Diesel is now 11.7% below its prior-year level. Diesel experienced a high but narrow pricing environment throughout 2013, fluctuating between the low of $3.817 on July 1 and the high of $4.159 on February 25. Diesel prices had remained within the 2013 range until early September. The $4 price level is no longer in sight, and $3 diesel could appear in the near future. In 2012, diesel exceeded $4 per gallon for a total of 26 weeks but only reached that level for 8 weeks during 2013, and only 4 weeks this year. The recessionary low price point for diesel was $2.023 in March 2009. A view of weekly prices over the last 6 years (second chart) indicates fairly stable prices between Q2 2011 and the recent slide (min of $3.65 and max of $4.16). We have now dropped below that range, and it appears prices will continue to drop. Diesel is now below the price level in each of the last three years for Q4 and is closing in on 2010 price levels. Diesel prices peaked at $4.771 per gallon in July 2008.
Annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks increased to 17.1 million in November, exceeding the consensus forecast of 16.5 million. Sales were 5.5% above November 2013 sales and topped a 17 million unit pace for only the second time since the recession. The unit sales pace is roughly equivalent with the early decade average (2001 – 2007) that has served as our primary barometer of the auto industry’s recovery. Auto sales remain below their all-time high (21.7 million), indicating there is still room for the industry to grow. Year-over-year growth for our three month moving average was 6.3%, roughly in line with growth rates over the last 7 months. The full-year sales total for 2013 was 15.6 million, a 7.3% improvement over 2012 and 6.6% below the early decade average (16.7 million). The recessionary low point for auto sales occurred during the first six months of 2009, when annualized sales averaged only 9.6 million units. Auto purchases represent a large portion of the typical household budget, and improving auto sales is directly correlated to rising confidence among American consumers. Our graph shows a 3-month moving average of seasonally adjusted annual rates to smooth out some of the month-to-month volatility.
Despite west-coast port labor issues, ocean spot rates have not risen significantly in the last few months. There has been significant week-to-week volatility, but the down weeks have offset the up weeks. In addition, the major shipping lines continue to have greater pricing power to east coast ports than west coast ports as the spread between east and west-coast ports remains large. The Shanghai Containerized Freight Index (SCFI) for west coast ports was $1,905 per FEU and to east coast ports was $4,078 on November 28. Prior-year comparisons highlight the pricing disparity between the west coast and east coast ports as west-coast rates are up $137 (11%) over 2013 and east-coast rates are up $1,073 (38%). The disparity between the coasts had been fairly consistent over the past year, but spot prices to the east coast spiked as volumes have rose due to both peak-season shipping and diversions from west coast ports. The SCFI reflects spot market rates for the Shanghai export container transportation market.
The Institute of Supply Management (ISM) reported that the Purchasing Managers’ Index dropped slightly to 58.7 in November, but exceeded expectations (58.2). November PMI was the third highest month of 2014 and is the eighteenth consecutive month of expansion. The New Order Index climbed to 66.0, up 0.2 points from 58.8, while the Production Index fell slightly to 64.4 from 64.8. Of 18 manufacturing industries, 14 reported monthly expansion. After hovering between 54.9 and 57.0 during the second half of 2013, the PMI fell considerably during January and February of 2014 as winter weather forced plant shutdowns and hampered new orders. Although the economy contracted significantly during the first quarter, the manufacturing sector continued to grow as the cost of operating domestic factories is becoming more competitive with Asia. An index over 50 indicates growth while a PMI under 50 represents contraction in the manufacturing sector of the economy. The index reached a low of 32.5 in December 2008 but then recovered more quickly than other areas of the economy. The vertical bars in the graph represent recessions.
New home inventories rose to 212k (seasonally adjusted) in October. Inventory levels have been slowly increasing throughout 2014. October’s new home inventory was well above the prior-year level of 184k, and inventories are at their highest level since June 2010, but new home inventories still remain low by historical standards. Inventories rose from 149k at the beginning of 2013 to 187k by December, following a year of remarkable stability in 2012 where the absolute inventory of new homes remained within a consistent range of 142k – 150k. The growth in inventories in the last year represents about an equal mix of homes under construction and completed homes waiting to be sold. The last three months showed a spike of 7k in completed homes and a decline of 4k in homes under construction.
Seasonally adjusted new home inventories rose slightly to 5.6 months of supply in October. Sales were flat at 458k in September (SAAR), compared to last month’s revised level of 455k, and were only 1.8% above prior year sales. Prior to July 2013, the months of supply figure had remained below 5 months since February 2012. The average months of supply over the last 50 years is 6.1, so current new home inventory is below “normal” levels. For the 9-year period of 1997 through 2005, the inventory level averaged 4.1 months with relatively little volatility, despite the dot-com boom and subsequent recession, and we are above that level today. The vertical bars in the graphs represent recessions.
Annualized U.S. assemblies of autos and light trucks fell to 10.8 million units in October (seasonally adjusted), 1.2% lower than one year ago, and the lowest level since January. Our graph is a three-month moving average of seasonally adjusted annualized assemblies. Using this moving average, year-over-year growth was only 1.4% in October, not only the worst performance of the year but the lowest since July 2011. The full year 2014 was anticipated to be robust for auto manufacturers, and after a disappointing start to the year, assemblies picked up hitting a 12.9 million unit pace in July, but have cooled off again in the last 3 months.
The auto industry has come a long way since assemblies bottomed at a 3.6 million-unit annual pace (seasonally adjusted) in January 2009. Average monthly seasonally adjusted assemblies were 11.4 million from January of 2001 through December of 2007, 5.3% above the average assembly rate for all of 2013 and 5.5% higher than October assembly volumes.
Housing starts totaled 1,009k in October (seasonally adjusted annual rate – SAAR) the second straight month above a million unit pace. October's year-over-year growth was strong at 7.8%. Single family starts totaled 696k, the highest level since last November and up 15.4% from prior year. Four months this year have seen starts above the one million unit pace (April & July plus the last 2 months), while excluding January all other months have been above 900k annualized. Coming into this year, many economists had anticipated that a surging housing sector would propel broader economic growth, but the sector has not fully lived up to these expectations. There were 848 thousand total housing starts during the first ten months of 2014 (not seasonally adjusted), up 9.6% from the 774 thousand during the same period of 2013. Single family starts are up 5% and multifamily starts are up 20%.
The Census Department reported total 2013 housing starts at 925k, a robust 18.5% above the 781k housing starts recorded in 2012. There remains a lot of ground for the housing sector to recover from the recession. Housing starts are still far below the average of just over 1.5 million per year over the last 40+ years, and even farther below the 2.2 million peak of the most recent housing boom. Since 1968, the U.S. population has grown from 200 million to over 300 million. Some economists believe that slower population growth and household formation in the U.S. mean that housing starts will not recover to 1.5 million units for a long time.
Total starts reached a low point of 478k (SAAR) in April of 2009, while single unit starts bottomed out at 353k in March of 2009. A low housing starts figure not only impacts transportation demand for building products but also for appliances, furniture, and other related items, so continued improvement in the housing sector should lead to rising freight volumes. The ATA estimates that each housing start generates 8 truckloads of freight.
Seasonally adjusted real retail sales rose to $187.0 billion in October, after falling in September. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). September’s sales were 2.5% higher than the prior-year period. Nominal (unadjusted for inflation) retail sales totaled $444.5 billion in October (second graph), representing a 4.1% year-over-year improvement, and 0.3% increase from September’s results. The results were slightly better than expected for October. We focus primarily on real retail sales because they are a better indicator of freight volumes than the inflated figures.
Weekly retail on-highway U.S. diesel prices fell 3.3 cents to $3.628 per gallon on November 24th, after increasing two weeks ago and dropping slightly last week. A 16.4 cent per gallon spike in the Midwest market on 11/10 attributed to low regional inventories caused the jump earlier this month. Most other regions experienced modest increases or decreases that week. Diesel declined or remained constant in every week between June 30 and November 3 of this year. Diesel is now 5.6% below its prior-year level. Diesel experienced a high but narrow pricing environment throughout 2013, fluctuating between the low of $3.817 on July 1 and the high of $4.159 on February 25. Diesel prices had remained within the 2013 range until early September. The $4 price level is no longer in sight. In 2012, diesel exceeded $4 per gallon for a total of 26 weeks but only reached that level for 8 weeks during 2013, and only 4 weeks so far this year. The recessionary low price point for diesel was $2.023 in March 2009. A view of weekly prices over the last 6 years indicates fairly stable prices since Q2 2011 (min of $3.62 and max of $4.16), after rising in previous years. We are now at the low end of that range, and it appears prices will continue to drop. Diesel is now below the price level in each of the last three years for Q4. Diesel prices peaked at $4.771 per gallon in July 2008.