Archive for February, 2015

  • Housing Starts, Sales, and Inventory

    New home inventories continue upward climb, but stronger sales hold down month’s of supply

    - by Tom Sanderson

    New home inventories rose to 218k in January (seasonally adjusted) from a revised 215k in December. Inventory levels slowly increased throughout 2014, and that trend continues into 2015. January’s new home inventory was well above the prior-year level of 189k, and inventories are at their highest level since March 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 (not seasonally adjusted) has been driven more by completed homes (13k) rather than homes under construction (6k). The last four months showed a spike of 8k in completed homes and a decline of 11k in homes under construction.

    Seasonally adjusted new home inventories fell to 5.4 months of supply in January. Sales were strong in January at 481k (SAAR), down 0.2% from prior month but up 5.3% from prior year. For the full year 2014, new home sales only grew by 1.2% to 435k units. The months of supply figure remained below 5 months between February 2012 and June 2013, but has drifted upward since then. 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.

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  • Housing Starts, Sales, and Inventory

    Housing starts over one million unit pace for 5th straight month

    - by Tom Sanderson

    Housing starts totaled 1,065k in January (seasonally adjusted annual rate – SAAR) the fifth straight month above a million unit pace, but down from December’s revised total of 1,087k. January starts were just shy of expectations (1,070k) but were 18.7% above prior year starts. Single family starts totaled 678k (SAAR), well below December’s 727k which was the highest level of last year, and a post-recession high mark. Single family starts were up 16.3% year-over-year.

    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%, so the rate of growth has definitely tapered off. 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.

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  • Diesel Fuel Prices

    Diesel prices rise for 3rd straight week

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices rose 3.5 cents to $2.900 per gallon on February 23th,  the third straight weekly increase, totaling 5.9 cents from the January 26 low point. Diesel declined or remained constant every week between June 30 and November 3 of 2014, and after a one-week uptick resumed its fall in every week until February 9. Diesel is 28% 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. In 2014, diesel prices remained within the 2013 range until early September, but then began a steep decline. The Energy Information Administration (EIA) is predicting a $2.83 per gallon average for 2015 and $3.24 for 2016. 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 in 2014. The recessionary low price point for diesel was $2.023 in March 2009. Diesel prices peaked at $4.771 per gallon in July 2008.

    A view of weekly prices over the last 6 years (second chart) indicates fairly stable prices between Q2 2011 and the start of the recent slide (min of $3.65 and max of $4.16). We are now well below that range, and it appears prices will hold at the current level with some fluctuation in the near term. Diesel is now below the price level in each of the last four years for February and just above 2010 pricing levels.

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  • Auto Sales & Assemblies

    Auto assemblies show strong year-over-year growth

    - by Tom Sanderson

    Annualized U.S. assemblies of autos and light trucks decreased slightly to 11.4 million units in January(seasonally adjusted), but were up 11.1% over January 2014. Our graph is a three-month moving average of seasonally adjusted annualized assemblies. Using this moving average, year-over-year growth was 5.5% in January, better than the last few months and in line with the first half of 2014.

    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, just about equal to current levels.

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  • Carrier Rate Graphs

    TL rates soar in Q4, 4-6% projected for 2015

    - by Tom Sanderson

    Stephens Inc. released their Q4-2014 update on publicly traded TL carriers reporting that rates per loaded mile excluding fuel surcharge increased by 5.2% sequentially from Q3-2014 and rose 7.5% over the same period last year. Last quarter marked the nineteenth consecutive quarter of year-over-year rate increases.  The Q4 year-over-year gain was the highest in 10 years as driver shortages, strong seasonal freight and west coast port issues tipped capacity-demand balance in favor of carriers. For the full year the TL index was up 10%, which seems overstated to me.

    Stephens expects 2015 rates to be up 4-6%, and I concur with that estimate. The dramatic decline in fuel prices has significantly lowered fuel surcharges, but that will not have any downward impact on linehaul rates. Quarterly data (second chart) shows larger rate increases in the last four quarters than had been the case in 2013, and illustrates the significant jump in Q4. The data does not necessarily represent the entire TL industry as the publicly traded carriers tend to be larger and more successful in general, so are also more likely to successfully raise rates.

    Average length of haul increased to 639 miles (third chart) in Q4 and 634 for the full year, the highest level since 2010, likely reflecting rail service issues in 2014. This is significant because shorter hauls not only increase revenue per mile without necessarily indicating price increases, but also lead to lower equipment utilization that can be detrimental to driver wages and carrier financial performance. As length of haul increases, the opposite occurs. Revenue per tractor per week continued to increase, setting a record high in 2014 of $3,341, and an even higher $3,524 in Q4, but this is unadjusted for inflation. Miles per tractor per week also increased, but remain well below historical averages. 

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    Miles per tr q4 14

    Graphs reproduced with permission from Stephens Inc. For more information contact: Jack Waldo at jwaldo@stephens.com or Brad Delco at brad.delco@stephens.com.

  • Carrier Rate Graphs

    An aging truck driver work force could mean greater shortages ahead

    - by Tom Sanderson

    The American Transportation Research Institute (ATRI) released a fascinating white paper analyzing the age demographics of truck drivers. I highly recommend the entire paper, but want to comment on some of the key findings. All of the charts in this post are from the ATRI white paper. The bottom line is that the U.S. truck driver population is aging and there are not enough young drivers in the labor force to fill the empty seats that will be opened by the upcoming retirement of drivers.

    As I think about how to attack the driver shortage problem, I believe the answer is more than higher pay. In fact, I do not think there is one simple answer but believe there are numerous actions than can have an impact. I also believe that we have to focus on both increasing the supply of truck drivers and decreasing the growth in demand for drivers as the economy expands.

    Increasing Supply: The primary shortage is for over-the-road TL drivers who spend weeks at a time away from home, sleeping in their trucks, showering and eating in truck stops, and enduring unnecessary hassles in getting unloaded in a timely fashion. Increasingly, we also hear about shortages in LTL and drayage capacity. Higher pay is the simplistic answer, but manufacturers and retailers can ill afford higher transportation rates so higher pay has to be associated with greater productivity. Getting 18-year olds into the industry is critical, but is limited by the CDL 21-year old age requirements. Immigration can be part of the solution to the driver shortage, just as it is for high tech workers. Equipment advances like automatic transmissions (already here) and self-parking vehicles (in the future) would expand the labor pool. Bringing retirees, particularly spousal teams, into the industry even if for only part of the year could be a win-win. Expanding truck-driving schools can help. Reducing the hassles of driving by providing greater access to parking and showers, and minimizing driver wait time and load-unload time will help keep drivers in the industry. Finally, I believe large carriers have the opportunity to engineer more routes and utilize technology that will provide more frequent get-home time to drivers without sacrificing utilization and pay. This would be a huge competitive advantage for the carriers that figure out how to execute such a strategy.

    Decreasing Demand Growth: Shippers need to redesign supply chain networks to enable greater use of intermodal and either private or dedicated fleets to reduce their reliance on long-haul for-hire TL fleets. Packaging innovation allows more product on fewer trailers. It looks like twin-33’ trailers may make the next highway bill, and while an 88,000 GVW limit is a long shot, it would be a much needed productivity boost. Cross-shipper collaboration eliminates waste by combining heavy and light products on a single trailer or by increasing payload from multiple shippers to smaller-volume receivers. Increasing equipment utilization not only helps increase supply but also reduces demand by getting more freight delivered by a fewer number of trucks. We need to reduce load/unload times, minimize driver waiting time, and reduce highway congestion. Smoothing out wasteful day-of-week, end-of-month and end-of-quarter freight surges would enable less total trucks to move the same amount of freight.

    We need a multi-pronged strategy to deal with a capacity shortage that will only get worse as an aging driver workforce nears retirement. ATRI points a bright light at the challenge we face.

    Trucking has a far higher percentage of its workforce in the 45-54 year age group and 55-64 year age group than the total workforce or the construction and service segments of the economy.

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    The trucking industry age demographics have shifted substantially over the last 20 years, from a younger to an older workforce. In 1994 over 30% of the workforce was 25-34 years old, but that has been cut in half as only 15% of the workforce falls in that age group today. Meanwhile 49% of the workforce is now between 45 and 64 years old compared to only 29% in 1994. Today we are faced with a dearth of younger workers in trucking to replace a large population that is rapidly approaching retirement age.

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    It is not the case that this shift simply represents an aging US population. The percentage of all 35-44 year old workers that are employed in trucking has fallen from 1.35% in 1994 to 0.64% in 2013 while the percentage of 55-64 year old workers employed in transportation has risen from 1.16% in 1994 to  1.59% in 2013. The industry is not attracting young workers at a pace needed to fill long-term employment needs. Part of the reason for this is that a person must be 21 years old to get a commercial drivers license (CDL) so people who do not go to college often move on to other professions and never enter the trucking industry.

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    Finally, all of the growth in the employed labor force over the last 20 years is made up of college grads. In 1992 just over 50 million Americans with no college experience were employed. In 2014, that number dropped to just under 50 million. Meanwhile the number of employed Americans with at least some college experience increased from about 55 million to almost 90 million in 2014. College grads are not typically attracted to the truck driving profession. I do believe though, that truck driving can be a more lucrative profession than many other jobs that do not require a  college degree, but the challenge is how the industry can win a greater share of this labor pool.

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  • Auto Sales & Assemblies

    Auto sales top 16 million-unit pace for 9th straight month

    - by Tom Sanderson

    Annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks fell to 16.6 million in January, in line with the consensus forecast. Sales were  9.0% above January 2014’s weather-reduced sales but were down slightly from December’s 16.8 million unit pace. This was the highest level of sales in January since 2006. 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 7.7%, near the high end of the range of growth rates over the last 12 months. The full-year sales total for 2014 was 16.5 million up 6% from 15.6 million in 2013 and right in line with 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.

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  • Ocean Freight

    East coast ocean spot rates remain extremely high

    - by Tom Sanderson

    East coast spot market oceans rates have risen sharply due to west-coast port issues. East cost rates are up 37% while west coast rates are down 6% year-over-year. There has been significant week-to-week volatility but the increase in east-coast spot market rates in the last 8 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 has grown extremely large. The Shanghai Containerized Freight Index (SCFI) for west coast ports was $1,979 per FEU and to east coast ports was $4,683 on January 30.

    Prior-year comparisons highlight the pricing disparity between the coasts as west-coast rates are down $129 (6%) over 2014 and east-coast rates are up $1,257 (37%). The disparity between the coasts had been fairly consistent in the first half of 2014, but spot prices to the east coast spiked primarily due to diversions from west coast ports. The SCFI reflects spot market rates for the Shanghai export container transportation market.

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    Source: Shanghai Containerized Freight Index – Shanghai Shipping Exchange, The Journal of Commerce, Transplace analysis – See more at: http://devblog.transplace.com/default.aspx#sthash.20F5khlm.dpuf

  • ISM Manufacturing Index

    Manufacturing growth continues, but at slower pace

    - by Tom Sanderson

    The Institute of Supply Management (ISM) reported that the Purchasing Managers’ Index dropped to 53.5 in January, the third straight monthly decline. and below expectations (54.5). January’s PMI was the lowest month since January 2014, but was the twentieth consecutive month of expansion. The New Order Index fell to 52.9, down 4.9 points from December. The Production Index also fell to 56.5 from 57.7. Of 18 manufacturing industries, 14 reported monthly expansion. The West Coast dock slowdown continues to be a problem, negatively impacting both exports and imports as well as inventories.

    After hovering between 54.9 and 57.0 during the second half of 2013, the PMI fell considerably during January of 2014, but then recovered, with a range of 54.3 to 58.2 for the balance of 2014. 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.

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  • Housing Starts, Sales, and Inventory

    New home inventories rise but strong sales drive down months of supply

    - by Tom Sanderson

    New home inventories rose to 219k in December (seasonally adjusted) from 214k in November. Inventory levels slowly increased throughout 2014. December’s new home inventory was well above the prior-year level of 187k, and inventories are at their highest level since March 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 (not seasonally adjusted) has been driven more by completed homes (17k) rather than homes under construction (7k). The last three months showed a spike of 9k in completed homes and a decline of 9k in homes under construction.

    Seasonally adjusted new home inventories fell to 5.5 months of supply in December. Sales were strong in December at 481k (SAAR), up 11.6% from prior month and 8.8% from prior year. For the full year 2014, new home sales only grew by 1.2% to 435k units. The months of supply figure remained below 5 months between February 2012 and June 2013, but has drifted upward since then. 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.

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