Archive for December, 2013

  • Retail & Same Store Sales

    Retail sales growth accelerates in November

    - by Tom Sanderson

    Seasonally adjusted real retail sales rose to $184.8 billion in November, climbing to a new all-time high and providing some optimism about the strength of this year’s holiday shopping season. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). Year-over-year growth was 3.8%, up significantly from October’s revised growth of 2.3%. Big-ticket items like autos, furniture, and electronics are the primary drivers of the recent sales gains. Nominal (unadjusted for inflation) retail sales totaled $432.3 billion in November (second graph), also representing a new all-time high. The nominal statistic represents a robust 0.7% gain over October and a 4.4% improvement from the year-ago period. A series of winter storms and a shortened holiday shopping season may act as headwinds for December’s sales figures and the broader holiday shopping season, but the increasing strength of October and November’s sales figures bodes well for the overall strength of the American consumer. Most economists had predicted the slowest holiday retail sales growth since 2009, so the recent improvements are certainly welcome news. The reason we focus on real retail sales is that the inflation-adjusted numbers are a better indicator of freight movement.

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  • Housing Starts, Sales, and Inventory

    Housing starts rise to highest post-recession level

    - by Tom Sanderson

    Housing starts rose to 1,091k in November, the highest level since February 2008 and only the second month since the end of the recession above a 1 million unit annual pace (seasonally adjusted annual rate – SAAR). Housing starts peaked at 1,005k in March, but fell back below 1,000k until last month. We lacked a continuous view of the housing market for a few months as the release of September and October’s data points was delayed due to the federal government shutdown. The annualized rate improved a hefty 29.5% over the year-ago period, maintaining the momentum of the housing recovery despite some concern over rising mortgage interest rates in 2014. Most economists predict a slow, gradual, and manageable rise in interest rates, and the cautious “tapering” policy of the Federal Reserve lends credibility to this argument. Housing starts totaled 782k in 2012 up from 612k in 2011. 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. Housing starts still remain 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. Low housing starts not only impacts transportation demand for building products but also for appliances, furniture, and other related items. One analyst estimates that each housing start generates 8 truckloads of freight. The vertical bars represent recessions.

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  • Morgan Stanley Graphs

    Dry van capacity surges to tightest level of the year

    - by Tom Sanderson

    Morgan Stanley’s dry van truckload freight index indicates a market that has recently surged to its tightest level of the year, eclipsing the previous peak from early July. The beginning of December is historically one of the weakest periods for the dry van market, so it is somewhat surprising that capacity has tightened so greatly. Increasing freight volumes, delayed demand due to weather problems, and a shortened holiday shopping season are all likely contributors to the recent tightening. The effective capacity reduction of 3% attributable to the new Hours-of-Service rules has undoubtedly made it more difficult for the industry to respond to unexpected demand spikes like the one we are currently experiencing. The recent surge is as surprising and significant as the tightening that occurred from February through April of 2011. The tepid pace of the economic recovery through the first half of this year produced lackluster freight volumes as we expected, but the recent uptick could represent an improving economic landscape. 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. For more information contact: Adam Longson at Adam.Longson@morganstanley.com or Bill Greene at William.Greene@morganstanley.com

  • Morgan Stanley Graphs

    Refrigerated market finishes 2013 the way it started: a carrier’s market

    - by Tom Sanderson

    Morgan Stanley’s refrigerated freight index depicts a market that has escaped its prevailing seasonal trend over the last few weeks. Refrigerated capacity-demand balance was around or slightly tighter than its recent historical average for much of Q3 and the beginning of Q4, but this market is poised to end 2013 with the same severe capacity tightness it experienced in January. If the current trend continues, the refrigerated market has the potential to begin 2014 with the tightest capacity-demand balance in recent history. The recent tightening bolsters the claim that the pricing environment in this segment favors the carriers as no significant capacity is entering the industry. Demand for refrigerated transportation is less correlated to economic fluctuations than dry van or flatbed freight, so regardless of the economic outlook for 2014 the demand for refrigerated transportation will rise. 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.

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    Graph reproduced with permission from Morgan Stanley. For more information contact: Adam Longson at Adam.Longson@morganstanley.com or Bill Greene at William.Greene@morganstanley.com

  • Morgan Stanley Graphs

    Flatbed capacity remains abundant, reflects normal seasonality

    - by Tom Sanderson

    Morgan Stanley’s flatbed freight index indicates abundant capacity that closely mirrors the market’s typical seasonality. The flatbed market briefly crossed above its recent historical average in September and October but has since returned to its ordinary level for this time of year. The second half of 2012 was a remarkably weak period for the flatbed market. With the uptick in housing starts and surging domestic energy production, it remains rather surprising that flatbed capacity never tightened as much in 2012 and 2013 as it did in 2010 and 2011. The flatbed market was particularly hard hit by the recessionary decrease in housing starts, but gained ground in 2010 and 2011 with the resurgence of the American manufacturing sector. 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.

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    Graph reproduced with permission from Morgan Stanley. For more information contact: Adam Longson at Adam.Longson@morganstanley.com or Bill Greene at William.Greene@morganstanley.com

  • Auto Sales & Assemblies

    Auto assemblies rebound in November

    - by Tom Sanderson

    After falling from a 7-year high in October, annualized U.S. assemblies of autos and light trucks rebounded to 11.3 million in November. Last month’s data point represents the highest rate of assemblies since April 2006. The federal government shutdown likely contributed to October’s weakness, but this effect was short-lived. Our graph is a 3-month moving average of the seasonally adjusted annualized assemblies. Using this moving average, year-over-year percentage growth jumped 13.1%. The auto industry has come a long way since assemblies bottomed at a 3.6 million-unit annual pace (not seasonally adjusted) in January 2009. Average monthly seasonally adjusted assemblies were 11.4 million from January of 2001 through December of 2007, 5.9% above the average pace so far this year but only marginally higher than November’s volume.

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  • Retail & Same Store Sales

    Same store sales show moderately improved results

    - by Tom Sanderson

    Same store sales results among the nation’s largest retailers for the third quarter demonstrated moderate growth. The average gain of 2.8% was larger than the average growth of 2.1% in Q3-2012. The Home Depot and Lowe’s registered another quarter of robust gains as the housing sector remains strong, but weakness at discount stores raises concern about the financial strength of value shoppers. Declining same-store sales at Wal-Mart and McDonald’s underperformed the year-earlier period for those two retailers and also compared unfavorably to only one retailer with declining sales for the same quarter of 2012. The entire retail sector experienced surprisingly robust growth in November and this strength should be reflected in the fourth quarter data. The originally dire predictions about the holiday shopping season have already been proven to be overly conservative. The retail segment drives a tremendous amount of freight transportation and the continued improvement indicates that demand for freight may soon become more robust.

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    Source: individual retailer web sites, www.stores.org , Transplace analysis, excludes fuel sales.

  • Compliance, Safety, Accountability

    ATA issues a white paper critical of CSA/SMS as a tool to measure individual carriers

    - by Tom Sanderson

    The American Trucking Associations issues a white paper questioning the reliability of CSA/SMS as a tool for shippers and brokers to use in selecting carriers. The paper concludes that “Though there are statistical correlations between SMS scores in certain categories and crash risk, as well as between the total number of alerts assigned and crash risk, individual carriers’ scores can be unreliable indicators of their safety performance. The identified correlations between scores and crash risk represent industry-wide trends that often don’t hold true for individual carriers. In most BASICs there are thousands of carriers (“exceptions”) whose scores contradict the trends (i.e. carriers with high scores but low crash rates and vice-versa).”

    The paper is critical of the insufficient data collected by SMS stating that only 18 percent of active motor carriers have a score on even one of the five published BASICs. In an industry where 90% of the carriers have 6 or fewer trucks, only about 6% of those smaller fleets have enough data to generate a score in at least one BASIC.

    Regional enforcement discrepancies are also highlighted indicating that scores are more a reflection of where a carrier operated than how safely it operates. For example, 10 states account for half of all speeding violations. Moving violations represent 29% of all violations in Indiana and Delaware but only 1.4% of all violations in Mississippi.

    The system makes no attempt to determine who was at fault in crashes, so a carrier that is struck while legally parked is scored the same as a carrier that strikes a legally parked car. This is critical because it is estimated that 70-75% of all fatal truck-car crashes are caused by the automobile driver.

    The Rube Goldberg system of severity weightings on every possible violation that are rolled up into a score on each BASIC is also criticized in the report. The statistical data was modified based on subjective input from “subject matter experts.” The report states that, “Doing so further blurred the statistical relationships between individual violations and crash risk.”

    As we have stated all along, the ATA believs that SMS is an appropriate tool to help the FMCSA prioritize its enforcement resources and provides valuable feedback to carriers. The system is not appropriate for the shipping  public to use for carrier selection.

    The report concludes: “In almost all measurement categories there are thousands of fleets with high scores but low crash rates or vice-versa.
    The relationship between scores and crash risk is impacted by a number of data and methodology problems that plague the system. A substantial lack of data, particularly on small carriers who comprise the bulk of the industry, hinders the system’s ability to render meaningful scores of comparative performance. Regional enforcement disparities likely cause fleets of all sizes operating in jurisdictions with robust enforcement practices to be perceived as less safe than those operating in other regions. Also, the questionable assignment of severity weights to individual violations can skew carriers’ scores. Finally, the underreporting of crashes by states, the use of crashes that were not caused by motor carriers, and the increased exposure to crashes experienced by carriers operating in urban environments, all affect the significance of Crash Indicator BASIC scores.”

  • Auto Sales & Assemblies

    Auto sales surge to 16.3 million-unit annual pace

    - by Tom Sanderson

    Annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks surged to a 16.3 million-unit annual pace in November, the highest level since February 2007. The sales pace briefly crossed over 16.0 million units in August, but dipped to 15.2 million during September and October. Using our three-month moving average, sales are up 5.3% from the year-ago period reflecting strong sales in the closing months of 2012. Domestic brand dealerships offered steep discounts towards the end of the month (including Black Friday) in order to reduce inventories of 2013 models. The annualized sales rate is now just 2% below the early decade (2001 – 2007) average of 16.7 million, but it will be surprising if the auto industry will realize the necessary growth in December to rise above the pre-recession level. Sales began their dramatic recessionary slide in 2008. The low point for auto sales occurred during the first six months of 2009, when annualized sales averaged only 9.6 million. Our graph shows a 3-month moving average of seasonally adjusted annual rates to smooth out some of the month-to-month volatility.

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  • Housing Starts, Sales, and Inventory

    New home inventory and months of supply dip in October

    - by Tom Sanderson

    After rising to 190k (seasonally adjusted) in September, new home inventory fell to 183k in October. This level is well above the prior-year reading of 146k from October 2012, but new home inventory remains lower than almost any period in the last 46 years. This year’s relatively steady rise in inventories follows a period throughout 2012 in which the absolute inventory of new homes remained within a fairly level range of 142k – 150k. Seasonally adjusted new home inventories fell to 4.9 months of supply in October after rising to 6.4 in September, the highest level since August 2011. Prior to July of this year, the months of supply figure had been below 5 months since February 2012. The average months of supply over the last 50 years is 6.1, so the housing inventory picture remains positive. 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, which causes some concern at this point. Still, any significant growth in the rate of sales will quickly deplete the low absolute inventory level and lead to a significant increase in housing starts (and freight). New home starts are substantially higher than last year, with inventory rising only modestly, indicating sales have been keeping pace with the increase in construction. The vertical bars in the graphs represent recessions.

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