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  • ISM Manufacturing Index

    Manufacturing sector continues strong growth

    - by Tom Sanderson

    The Institute of Supply Management (ISM) reported that the Purchasing Managers’ Index (PMI) fell to 58.7 in October from 60.8 in September. September was the highest PMI since May 2004. So far every month of 2017 has had a higher index than any month of 2016. After contracting in August 2016, the manufacturing sector has expanded at a strong pace.  PMI came in below expectations (59.5). The New Order Index decreases by 1.2 points to 63.4. The Production Index fell by 1.2 points to 61.0. Of 18 manufacturing industries, 16 reported monthly growth in October, and the other two had no change.

    After a slow start in January of 2014, PMI recovered, with a range of 54.3 to 58.1 for the balance of 2014. We did not see a reading above 53.9 in 2015, and that high mark was reached in January. In 2016, the index ranged from 48.2 (Jan) to 54.5 (Dec) but it was not a steady rise, with manufacturing contracting in February and August.

    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 most other areas of the economy.

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  • ISM Manufacturing Index

    Manufacturing index reaches highest level of last 13+ years

    - by Tom Sanderson

    Manufacturing index reaches highest level of last 13+ years

    The Institute of Supply Management (ISM) reported that the Purchasing Managers’ Index (PMI) increased  to 60.8 in September from 58.8 in August. This was the highest PMI since May 2004. So far every month of 2017 has had a higher index than any month of 2016. After contracting in August 2016, the manufacturing sector has expanded at a strong pace.  PMI came in above expectations (58.0). The New Order Index increase by 4.3 points to 64.6. The Production Index rose by 1.2 points to 62.2. Of 18 manufacturing industries, 17 reported monthly growth in September.

    After a slow start in January of 2014, PMI recovered, with a range of 54.3 to 58.1 for the balance of 2014. We did not see a reading above 53.9 in 2015, and that high mark was reached in January. In 2016, the index ranged from 48.2 (Jan) to 54.5 (Dec) but it was not a steady rise, with manufacturing contracting in February and August.

    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 most other areas of the economy.

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  • Housing Starts, Sales, and Inventory

    New home inventories rise and sales fall in August

    - by Tom Sanderson

    New home inventories rise and sales fall in August

    According to the U.S. Census Bureau and the Department of Housing and Urban Development, single-family new home inventories increased to 284k in August (seasonally adjusted). Absolute inventories are at the highest level since May 2009. August’s new home inventories were 43k (17.8%) above the prior-year level of 241k. New home inventories are closing in on longer run average inventory levels (~340k).

    The growth in inventories in the last year (seasonally adjusted) has been driven by homes under construction (+24K) and homes not yet started (+15k), more so than by homes completed (+3k).

    New home inventories increased slowly during the first 9 months of 2016, from 237k in January to 242k in September, but then jumped to 256k by December, an increase of 19k from January. In 2015, inventories rose 27k; from 207k in January to 234k in December. The last year of flat inventories was 2012, when the absolute inventory of new homes remained within a consistent range of 142k – 150k.

    Seasonally adjusted new home inventories increased to 6.1 months of supply in August, from 5.7 months in July and 5.1 months in August 2016. Inventories have not been this high since August 2014. Sales of new single-family houses fell to 560k (seasonally adjusted annual rate), down 3.4% from revised prior month sales and down 1.2% from prior year. Full-year 2016 sales of 561k were up 12.0% from 501k in 2015. Year-to-date 2017 sales are up 7.5%

    Full year 2015 new home sales were up 14.6% over 2014. For the full year 2014, new home sales only grew by 1.9% to 437k units. The months of supply figure remained below 5 months between February 2012 and June 2013, but was 5.0 or more from that point through the end of 2014 with only one exception. In 2015, eight months were at 5.0 or greater months of supply, including each of the last 7 months of the year. In 2016, only one month (July) was less than 5.0 and this year every month has seen 5 or more months of supply on the market. The average months of supply over the last 50 years is 6.1, so current new home inventory are at “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 well above that level today.  The vertical bars in the graphs represent recessions.

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  • Housing Starts, Sales, and Inventory

    Single family housing starts continue to outpace multi-unit starts

    - by Tom Sanderson

    Single family housing starts continue to outpace multi-unit starts

    Housing starts totaled 1.180 million in August (seasonally adjusted annual rate – SAAR) down 0.8% from prior month’s revised figures, and up 1.4% from August 2016 results, and were above expected levels. Single family starts totaled 851k (SAAR), up 1.6% from July and up 17.1% year-over-year. Starts of multi-unit (5+)structures were 323k (SAAR) down 5.8% from July and down 23.1% over prior year. Year-to-date starts are up 2.7%, with single family starts up 8.9% and 5+ unit starts down 9.7%.

    For the full year 2016, total starts were 1.174 million, up 5.6% over 2015. Single unit starts led the way with 9.4% growth, while multi-unit starts declined by 1.3%. In the prior couple of years single-unit starts grew more slowly than multi-unit starts. For the full year 2015, total starts were 1.112 million, up 10.8% over 2014. Single unit starts were up 10.3% in 2015, while 5+ unit starts were up 12.9%. For the full year 2014, there were 1.003 million total housing starts, up 8.8% from the 925 thousand starts during 2013. Single family starts were up 4.9% and multifamily starts were up 16.4%. Total 2013 housing starts were up a robust 18.5% from the 781k housing starts recorded in 2012 and in 2012 starts were up 28.2%.

    Despite several years of strong growth, there remains a lot of ground to cover for the housing sector to fully recover from the recession. Housing starts are still well 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 more than 320 million. Some economists believe that slower population growth and household formation in the U.S. means 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.

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  • Diesel Fuel Prices

    Diesel prices have not come back down from hurricane-related increase

    - by Tom Sanderson

    Diesel prices have not come back down from hurricane-related increase

    Weekly retail on-highway U.S. diesel prices increased by 0.4 cents to $2.792 per gallon on October 2. This was just under the $2.802 per gallon hurricane peak on September 11. Diesel prices fluctuated in a very narrow range between 2.465 and 2.598 per gallon between 12/19 and 8/21, but have risen 20 cents per gallon since then, and have not yet started to retreat.

    In February 2016, diesel prices reached their lowest level ($1.980) since January 2005, dropping below the recessionary trough, before rebounding throughout the rest of the year, finally crossing the $2.50/gallon mark on 12/19. The last year that diesel did not exceed $2.50 per gallon all year was 2004.

    Diesel prices are 40.3 cents per gallon higher than one year ago, and 30.0 cents per gallon higher than two years ago. On September 12, the Energy Information Administration (EIA) released its pricing forecast of 2.61 per gallon for all of 2017, and anticipates ending this year at $2.70.

    A view of weekly prices over the last 6+ years (second chart) indicates fairly stable prices between Q2 2011 and the start of the 2015 slide (min of $3.65 and max of $4.16). Diesel prices then stabilized between August 24 and November 16 of 2015, with a high of $2.561 and a low of $2.476 during those 13 weeks, but were in steady decline between then and February 2016 before beginning a slow but steady climb.Diesel remains below the October price level in each of the four years prior to 2015.

    The recessionary low price point for diesel was $2.023 in March 2009. Diesel prices peaked at $4.771 per gallon in July 2008.

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  • Retail & Same Store Sales

    Retail sales were below expectations in August

    - by Tom Sanderson

    Retail sales were below expectations in August

    The U.S. Bureau of the Census reported that seasonally adjusted real retail and food service sales were down 0.7% at $193.8 billion in August. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). August sales were 1.2% higher than the prior-year period.

    Nominal (unadjusted for inflation) seasonally-adjusted retail sales totaled $474.8 billion in August (second graph), also down slightly (-0.2%) from prior month, but up 3.2% from prior year results. This was the third straight sub-4% year-over-year gain after exceeding 4% in each of the prior 6 months. Total nominal sales were up 3.3% for the full year 2016.

    The results were below consensus expectations. YTD nominal retail and food services sales excluding gasoline were up 3.8% year-over-year. August nonstore retailer sales (e-commerce and mail order) were up 8.4%. Gasoline station sales were up 6.4% year-over-year. Department stores sales fell by 0.8% year-over-year, while electronic and appliance store sales fell by 3.5%. We focus primarily on real retail sales because they are a better indicator of freight volumes than the inflated figures.

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  • Morgan Stanley Graphs

    Refrigerated capacity-demand balance about normal for late Q3

    - by Tom Sanderson

    Refrigerated capacity-demand balance about normal for late Q3

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity is significantly tighter than last year and 2015, and just a little tighter than the long-term trend line for late September. Aside from the severe excess capacity markets of 2015 and 2016, capacity-demand balance is about normal for this time of year.

    For most of 2016, refrigerated capacity was more readily available than in 2015, but in Q4 the lines crossed indicating a tighter capacity environment than in the prior year. Capacity continued to tighten through the end of January this year, but then eased off a little before gradually tightening throughout Q2 and then stabilizing in Q3.

    Refrigerated capacity began 2015 the same way it ended 2014, significantly tighter than normal. Throughout Q2 of 2015, the market shifted with the result being that capacity was not nearly as constrained as normal. That was even more so the case in Q3 and Q4, as the index dropped to a level lower than in any recent year, including 2009.

    Later this year we could see more rate increases as smaller refrigerated carriers adopt ELDs and see equipment utilization drop by 4-5%.  Demand for refrigerated transportation is less correlated to economic fluctuations than dry van or flatbed freight, so the future robustness of GDP growth will not determine demand growth in this market.

    The index measures incremental demand for refrigerated truckload services compared to incremental supply. The higher the index the tighter is capacity relative to demand when compared to a prior period.

    image

    Graph reproduced with permission from Morgan Stanley. *2006-2016 average trend line excludes financial crisis years of 2008 and 2009. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com

  • Morgan Stanley Graphs

    Flatbed capacity is a little tighter than normal, but could get even tighter in the next couple of months

    - by Tom Sanderson

    Flatbed capacity is a little tighter than normal, but could get even tighter in the next couple of months

    Morgan Stanley’s flatbed freight index indicates that flatbed capacity is tighter than normal for late September, but unlike the van index has not surpassed 2014 levels. As we head into Q4, I expect flatbed capacity to get tighter. Demand will strengthen for building products shipments as a result of the hurricanes. Supply will also be challenged. There are very few large and very many small flatbed carriers. As the smaller carriers implement ELDs in Q4, utilization will decline reducing effective capacity.

    In 2016, flatbed capacity was more readily available than was the case in 2015 until the last 6 weeks of the year, when the lines crossed. Flatbed capacity continued to tighten through the first half of 2017, but leveled off in Q3. If the index holds at the current level, capacity will be tighter in Q4 than in any recent year.

    Flatbed capacity-demand balance favored the carriers over the shippers more so in 2014 than in the prior two years, but capacity never became as tight in 2014 as in 2010 and 2011. Low oil prices and a falloff in drilling activity meant that capacity never did tighten in 2015 or 2016. So far, 2017 as been more of a “normal” year, tracking fairly close to the longer-term average.

    The index measures incremental demand for flatbed truckload services compared to incremental supply. The higher the index the tighter is capacity relative to demand when compared to a prior period.

    image

    Graph reproduced with permission from Morgan Stanley. *2006-2016 average trend line excludes financial crisis years of 2008 and 2009. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com

  • Morgan Stanley Graphs

    Van capacity is tight & partly hurricane related

    - by Tom Sanderson

    Van capacity is tight & partly hurricane related

    As we near the end of Q3, van capacity is significantly tighter than in any recent year for late September. The index moved above the tightest recent capacity year (2014) in the last couple of weeks. Once the hurricane disruptions ease, we will probably see capacity ease up but a strong holiday push leading up to the December 18th ELD mandate could lead to very tight capacity later this year. While carriers will not be placed out of service for non-ELD compliance until April 1st, they will be receiving citations beginning in December and I expect that many small carriers will be implementing ELDs in Q4, so the utilization hit will be felt.

    In December of last year, capacity tightened and the index reached its highest level of 2016. That was a very different pattern than 2015, when capacity was at it tightest in January and became more readily available throughout the year. This year, capacity became tighter than normal early in Q3 and has remained above the longer-term trend line for the entire third quarter.

    Morgan Stanley believes that capacity will remain as tight as it is today through the end of the year. That could well be the case as the economy is picking up some steam, freight typically pick up in Q4, and the utilization hit of small carriers implementing ELDs will be felt in Q4. We have already seen spot rates increase in late Q2 and throughout Q3. If Morgan Stanley is right, there will be no relief in spot rates through Q4.

    The index measures incremental demand for dry-van truckload services compared to incremental supply. The higher the index the tighter is capacity relative to demand when compared to a prior period.

    image

    Graph reproduced with permission from Morgan Stanley. *2006-2016 average trend line excludes financial crisis years of 2008 and 2009. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com

  • Auto Sales & Assemblies

    US auto and light truck assemblies remain below 2016 levels

    - by Tom Sanderson

    US auto and light truck assemblies remain below 2016 levels

    Annualized U.S. assemblies of autos and light trucks rose 0.5% to 11.23 million units in June (seasonally adjusted), but were down 6.6% from prior year. Assemblies have recovered somewhat since March when they were at the lowest level since February 2015. Seasonally adjusted assemblies have been at or above an 11-million unit pace since March 2015, but have only been above a 12-million unit pace once in the last 23 months (June 2016). Our graph is a three-month moving average of seasonally adjusted annualized assemblies. Using this moving average, year-over-year assemblies are down 3.8% and year-over-year change has hovered around or under 0 since April 2016. Each of the last 4 months are lower than any month since May 2016. With sales flat and inventories high, it is not surprising that assemblies are weak.

    The auto industry has come a long way since assemblies bottomed out 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, and averaged 11.7 and 11.8 million units in 2015 and 2016 respectively. The 2017 YTD average is 11.3 million.

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  • ISM Manufacturing Index

    Manufacturing sector continues strong growth

    - by Tom Sanderson

    The Institute of Supply Management (ISM) reported that the Purchasing Managers’ Index (PMI) fell to 58.7 in October from 60.8 in September. September was the highest PMI since May 2004. So far every month of 2017 has had a higher index than any month of 2016. After contracting in August 2016, the manufacturing sector has expanded at a strong pace.  PMI came in below expectations (59.5). The New Order Index decreases by 1.2 points to 63.4. The Production Index fell by 1.2 points to 61.0. Of 18 manufacturing industries, 16 reported monthly growth in October, and the other two had no change.

    After a slow start in January of 2014, PMI recovered, with a range of 54.3 to 58.1 for the balance of 2014. We did not see a reading above 53.9 in 2015, and that high mark was reached in January. In 2016, the index ranged from 48.2 (Jan) to 54.5 (Dec) but it was not a steady rise, with manufacturing contracting in February and August.

    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 most other areas of the economy.

    image

  • ISM Manufacturing Index

    Manufacturing index reaches highest level of last 13+ years

    - by Tom Sanderson

    Manufacturing index reaches highest level of last 13+ years

    The Institute of Supply Management (ISM) reported that the Purchasing Managers’ Index (PMI) increased  to 60.8 in September from 58.8 in August. This was the highest PMI since May 2004. So far every month of 2017 has had a higher index than any month of 2016. After contracting in August 2016, the manufacturing sector has expanded at a strong pace.  PMI came in above expectations (58.0). The New Order Index increase by 4.3 points to 64.6. The Production Index rose by 1.2 points to 62.2. Of 18 manufacturing industries, 17 reported monthly growth in September.

    After a slow start in January of 2014, PMI recovered, with a range of 54.3 to 58.1 for the balance of 2014. We did not see a reading above 53.9 in 2015, and that high mark was reached in January. In 2016, the index ranged from 48.2 (Jan) to 54.5 (Dec) but it was not a steady rise, with manufacturing contracting in February and August.

    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 most other areas of the economy.

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  • Housing Starts, Sales, and Inventory

    New home inventories rise and sales fall in August

    - by Tom Sanderson

    New home inventories rise and sales fall in August

    According to the U.S. Census Bureau and the Department of Housing and Urban Development, single-family new home inventories increased to 284k in August (seasonally adjusted). Absolute inventories are at the highest level since May 2009. August’s new home inventories were 43k (17.8%) above the prior-year level of 241k. New home inventories are closing in on longer run average inventory levels (~340k).

    The growth in inventories in the last year (seasonally adjusted) has been driven by homes under construction (+24K) and homes not yet started (+15k), more so than by homes completed (+3k).

    New home inventories increased slowly during the first 9 months of 2016, from 237k in January to 242k in September, but then jumped to 256k by December, an increase of 19k from January. In 2015, inventories rose 27k; from 207k in January to 234k in December. The last year of flat inventories was 2012, when the absolute inventory of new homes remained within a consistent range of 142k – 150k.

    Seasonally adjusted new home inventories increased to 6.1 months of supply in August, from 5.7 months in July and 5.1 months in August 2016. Inventories have not been this high since August 2014. Sales of new single-family houses fell to 560k (seasonally adjusted annual rate), down 3.4% from revised prior month sales and down 1.2% from prior year. Full-year 2016 sales of 561k were up 12.0% from 501k in 2015. Year-to-date 2017 sales are up 7.5%

    Full year 2015 new home sales were up 14.6% over 2014. For the full year 2014, new home sales only grew by 1.9% to 437k units. The months of supply figure remained below 5 months between February 2012 and June 2013, but was 5.0 or more from that point through the end of 2014 with only one exception. In 2015, eight months were at 5.0 or greater months of supply, including each of the last 7 months of the year. In 2016, only one month (July) was less than 5.0 and this year every month has seen 5 or more months of supply on the market. The average months of supply over the last 50 years is 6.1, so current new home inventory are at “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 well above that level today.  The vertical bars in the graphs represent recessions.

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  • Housing Starts, Sales, and Inventory

    Single family housing starts continue to outpace multi-unit starts

    - by Tom Sanderson

    Single family housing starts continue to outpace multi-unit starts

    Housing starts totaled 1.180 million in August (seasonally adjusted annual rate – SAAR) down 0.8% from prior month’s revised figures, and up 1.4% from August 2016 results, and were above expected levels. Single family starts totaled 851k (SAAR), up 1.6% from July and up 17.1% year-over-year. Starts of multi-unit (5+)structures were 323k (SAAR) down 5.8% from July and down 23.1% over prior year. Year-to-date starts are up 2.7%, with single family starts up 8.9% and 5+ unit starts down 9.7%.

    For the full year 2016, total starts were 1.174 million, up 5.6% over 2015. Single unit starts led the way with 9.4% growth, while multi-unit starts declined by 1.3%. In the prior couple of years single-unit starts grew more slowly than multi-unit starts. For the full year 2015, total starts were 1.112 million, up 10.8% over 2014. Single unit starts were up 10.3% in 2015, while 5+ unit starts were up 12.9%. For the full year 2014, there were 1.003 million total housing starts, up 8.8% from the 925 thousand starts during 2013. Single family starts were up 4.9% and multifamily starts were up 16.4%. Total 2013 housing starts were up a robust 18.5% from the 781k housing starts recorded in 2012 and in 2012 starts were up 28.2%.

    Despite several years of strong growth, there remains a lot of ground to cover for the housing sector to fully recover from the recession. Housing starts are still well 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 more than 320 million. Some economists believe that slower population growth and household formation in the U.S. means 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.

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  • Diesel Fuel Prices

    Diesel prices have not come back down from hurricane-related increase

    - by Tom Sanderson

    Diesel prices have not come back down from hurricane-related increase

    Weekly retail on-highway U.S. diesel prices increased by 0.4 cents to $2.792 per gallon on October 2. This was just under the $2.802 per gallon hurricane peak on September 11. Diesel prices fluctuated in a very narrow range between 2.465 and 2.598 per gallon between 12/19 and 8/21, but have risen 20 cents per gallon since then, and have not yet started to retreat.

    In February 2016, diesel prices reached their lowest level ($1.980) since January 2005, dropping below the recessionary trough, before rebounding throughout the rest of the year, finally crossing the $2.50/gallon mark on 12/19. The last year that diesel did not exceed $2.50 per gallon all year was 2004.

    Diesel prices are 40.3 cents per gallon higher than one year ago, and 30.0 cents per gallon higher than two years ago. On September 12, the Energy Information Administration (EIA) released its pricing forecast of 2.61 per gallon for all of 2017, and anticipates ending this year at $2.70.

    A view of weekly prices over the last 6+ years (second chart) indicates fairly stable prices between Q2 2011 and the start of the 2015 slide (min of $3.65 and max of $4.16). Diesel prices then stabilized between August 24 and November 16 of 2015, with a high of $2.561 and a low of $2.476 during those 13 weeks, but were in steady decline between then and February 2016 before beginning a slow but steady climb.Diesel remains below the October price level in each of the four years prior to 2015.

    The recessionary low price point for diesel was $2.023 in March 2009. Diesel prices peaked at $4.771 per gallon in July 2008.

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  • Retail & Same Store Sales

    Retail sales were below expectations in August

    - by Tom Sanderson

    Retail sales were below expectations in August

    The U.S. Bureau of the Census reported that seasonally adjusted real retail and food service sales were down 0.7% at $193.8 billion in August. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). August sales were 1.2% higher than the prior-year period.

    Nominal (unadjusted for inflation) seasonally-adjusted retail sales totaled $474.8 billion in August (second graph), also down slightly (-0.2%) from prior month, but up 3.2% from prior year results. This was the third straight sub-4% year-over-year gain after exceeding 4% in each of the prior 6 months. Total nominal sales were up 3.3% for the full year 2016.

    The results were below consensus expectations. YTD nominal retail and food services sales excluding gasoline were up 3.8% year-over-year. August nonstore retailer sales (e-commerce and mail order) were up 8.4%. Gasoline station sales were up 6.4% year-over-year. Department stores sales fell by 0.8% year-over-year, while electronic and appliance store sales fell by 3.5%. We focus primarily on real retail sales because they are a better indicator of freight volumes than the inflated figures.

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  • Morgan Stanley Graphs

    Refrigerated capacity-demand balance about normal for late Q3

    - by Tom Sanderson

    Refrigerated capacity-demand balance about normal for late Q3

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity is significantly tighter than last year and 2015, and just a little tighter than the long-term trend line for late September. Aside from the severe excess capacity markets of 2015 and 2016, capacity-demand balance is about normal for this time of year.

    For most of 2016, refrigerated capacity was more readily available than in 2015, but in Q4 the lines crossed indicating a tighter capacity environment than in the prior year. Capacity continued to tighten through the end of January this year, but then eased off a little before gradually tightening throughout Q2 and then stabilizing in Q3.

    Refrigerated capacity began 2015 the same way it ended 2014, significantly tighter than normal. Throughout Q2 of 2015, the market shifted with the result being that capacity was not nearly as constrained as normal. That was even more so the case in Q3 and Q4, as the index dropped to a level lower than in any recent year, including 2009.

    Later this year we could see more rate increases as smaller refrigerated carriers adopt ELDs and see equipment utilization drop by 4-5%.  Demand for refrigerated transportation is less correlated to economic fluctuations than dry van or flatbed freight, so the future robustness of GDP growth will not determine demand growth in this market.

    The index measures incremental demand for refrigerated truckload services compared to incremental supply. The higher the index the tighter is capacity relative to demand when compared to a prior period.

    image

    Graph reproduced with permission from Morgan Stanley. *2006-2016 average trend line excludes financial crisis years of 2008 and 2009. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com

  • Morgan Stanley Graphs

    Flatbed capacity is a little tighter than normal, but could get even tighter in the next couple of months

    - by Tom Sanderson

    Flatbed capacity is a little tighter than normal, but could get even tighter in the next couple of months

    Morgan Stanley’s flatbed freight index indicates that flatbed capacity is tighter than normal for late September, but unlike the van index has not surpassed 2014 levels. As we head into Q4, I expect flatbed capacity to get tighter. Demand will strengthen for building products shipments as a result of the hurricanes. Supply will also be challenged. There are very few large and very many small flatbed carriers. As the smaller carriers implement ELDs in Q4, utilization will decline reducing effective capacity.

    In 2016, flatbed capacity was more readily available than was the case in 2015 until the last 6 weeks of the year, when the lines crossed. Flatbed capacity continued to tighten through the first half of 2017, but leveled off in Q3. If the index holds at the current level, capacity will be tighter in Q4 than in any recent year.

    Flatbed capacity-demand balance favored the carriers over the shippers more so in 2014 than in the prior two years, but capacity never became as tight in 2014 as in 2010 and 2011. Low oil prices and a falloff in drilling activity meant that capacity never did tighten in 2015 or 2016. So far, 2017 as been more of a “normal” year, tracking fairly close to the longer-term average.

    The index measures incremental demand for flatbed truckload services compared to incremental supply. The higher the index the tighter is capacity relative to demand when compared to a prior period.

    image

    Graph reproduced with permission from Morgan Stanley. *2006-2016 average trend line excludes financial crisis years of 2008 and 2009. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com

  • Morgan Stanley Graphs

    Van capacity is tight & partly hurricane related

    - by Tom Sanderson

    Van capacity is tight & partly hurricane related

    As we near the end of Q3, van capacity is significantly tighter than in any recent year for late September. The index moved above the tightest recent capacity year (2014) in the last couple of weeks. Once the hurricane disruptions ease, we will probably see capacity ease up but a strong holiday push leading up to the December 18th ELD mandate could lead to very tight capacity later this year. While carriers will not be placed out of service for non-ELD compliance until April 1st, they will be receiving citations beginning in December and I expect that many small carriers will be implementing ELDs in Q4, so the utilization hit will be felt.

    In December of last year, capacity tightened and the index reached its highest level of 2016. That was a very different pattern than 2015, when capacity was at it tightest in January and became more readily available throughout the year. This year, capacity became tighter than normal early in Q3 and has remained above the longer-term trend line for the entire third quarter.

    Morgan Stanley believes that capacity will remain as tight as it is today through the end of the year. That could well be the case as the economy is picking up some steam, freight typically pick up in Q4, and the utilization hit of small carriers implementing ELDs will be felt in Q4. We have already seen spot rates increase in late Q2 and throughout Q3. If Morgan Stanley is right, there will be no relief in spot rates through Q4.

    The index measures incremental demand for dry-van truckload services compared to incremental supply. The higher the index the tighter is capacity relative to demand when compared to a prior period.

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    Graph reproduced with permission from Morgan Stanley. *2006-2016 average trend line excludes financial crisis years of 2008 and 2009. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com

  • Auto Sales & Assemblies

    US auto and light truck assemblies remain below 2016 levels

    - by Tom Sanderson

    US auto and light truck assemblies remain below 2016 levels

    Annualized U.S. assemblies of autos and light trucks rose 0.5% to 11.23 million units in June (seasonally adjusted), but were down 6.6% from prior year. Assemblies have recovered somewhat since March when they were at the lowest level since February 2015. Seasonally adjusted assemblies have been at or above an 11-million unit pace since March 2015, but have only been above a 12-million unit pace once in the last 23 months (June 2016). Our graph is a three-month moving average of seasonally adjusted annualized assemblies. Using this moving average, year-over-year assemblies are down 3.8% and year-over-year change has hovered around or under 0 since April 2016. Each of the last 4 months are lower than any month since May 2016. With sales flat and inventories high, it is not surprising that assemblies are weak.

    The auto industry has come a long way since assemblies bottomed out 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, and averaged 11.7 and 11.8 million units in 2015 and 2016 respectively. The 2017 YTD average is 11.3 million.

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