Archive for July, 2015

  • Auto Sales & Assemblies

    Auto and light truck sales exceed 17-million unit pace in consecutive months for first time in 10 years

    - by Tom Sanderson

    Annualized seasonally adjusted U.S. sales (SAAR) of domestic and foreign autos and light trucks decreased to 17.1 million in June, very near expectations (17.2 million), and remaining above a 17-million unit annual pace for consecutive months for the first time since 2005. Sales were  1.5% above June 2014 sales but were down 3.4% from prior month. Light truck sales performed more strongly than auto sales as low fuel prices continue to sway buyers. The unit sales pace continues to exceed 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 3.6%, reflecting weaker April results.

    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). This year could be the first since 2001 with more than 17 million units sold. Year-to-date sales are at 8.49 million units. 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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  • Auto Sales & Assemblies

    Auto assemblies drop back below 12-million unit annual pace

    - by Tom Sanderson

    Annualized U.S. assemblies of autos and light trucks decreased 5.7% to 11.5 million units in June (seasonally adjusted), but were up 0.7% from June 2014. June was disappointing after May assemblies reached the highest total since July 2014, and for only the second time since the recession exceeded a 12-million unit pace. Our graph is a three-month moving average of seasonally adjusted annualized assemblies. Using this moving average, year-over-year growth was 4.1% in June about in the middle of growth rates for 2015. 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 the average performance this year

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  • Housing Starts, Sales, and Inventory

    New home sales soften in June and inventories rise

    - by Tom Sanderson

    Single-family new home inventories increased by 7k to 215k in June (seasonally adjusted). Inventory levels slowly increased throughout 2014, peaking at 212k in December, but drifted down in the first 5 months of this year before rising in June. June’s new home inventories were 17k (8.6%) above the prior-year level of 198k. New home inventories still remain very 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 (seasonally adjusted) has been driven by homes not yet started (+11k) and homes under construction (+6k), not by completed homes (flat). From year-end, homes not yet started are up 6k while homes under construction are up 5k and completed homes are down 4k.

    Seasonally adjusted new home inventories rose to 5.4 months of supply in June down from 5.8 months a year ago but up from 4.8 months in May. Sales of single-family houses softened in June to 482k (SAAR), down 6.8% from prior month but up 18.1% from prior year. YTD new home sales are up 21.2%. 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. In 2015, four of the first six months have been at 5.0 or fewer month of supply. 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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  • Diesel Fuel Prices

    Diesel prices at lowest level since 2009

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices fell 5.9 cents to $2.723 per gallon on July 27th,  the ninth straight weekly decrease, totaling 19.1 cents. Diesel prices are at the lowest point since 2009 and are 29% below prior-year levels. As of July 7, the Energy Information Administration (EIA) was predicting a $2.86 per gallon average for 2015 and $3.03 for 2016.

    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 could continue to fall from the current level in the near term. Diesel is below the price level in each of the last five years for July.

    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.  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.

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  • Retail & Same Store Sales

    Disappointing retail sales in June

    - by Tom Sanderson

    Seasonally adjusted real retail and food service sales decreased to $185.9 billion in June, a 0.6% decrease from May. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). June sales were only 1.2% higher than the prior-year period, the smallest year-over-year gain since February 2014. Nominal (unadjusted for inflation) retail sales totaled $442.0 billion in June (second graph), representing a 1.4% year-over-year improvement, and 0.3% decrease from May results. The results were worse than the consensus expectation of flat performance. In addition, April and May were revised down adding to a weak overall report. Nominal retail sales excluding gasoline were down 0.4% from May and were up 3.5% year-over-year. For the quarter, sales were up 1.7% from 2014. The results are disappointing.  We focus primarily on real retail sales because they are a better indicator of freight volumes than the inflated figures.

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  • Uncategorized

    U.S. railroad traffic is down in 2015

    - by Tom Sanderson

    Through mid-year, rail carload traffic is down 4% year-over-year while intermodal traffic has grown by only 2.6%. Looking at the data across major commodities, coal is not only the largest commodity group on the U.S. railroads it is also the one that has declined the most, down 9.4% year-over-year. Despite that decline, coal accounts for over one-third of non-intermodal rail traffic. Clearly, the EPA’s war on coal combined with much lower natural gas prices has had a significant impact on demand for coal. Overall, five major commodity groups have grown, while the other five have declined.

    Other significant commodity groups with less rail traffic this year than last include Metallic Ores (down 6%) and Petroleum (down 2%), the latter reflecting the slowdown in oil production as oil prices plummeted.

    Only two major commodity groups have grown by more than 1% year-over-year. Grain is the fastest growing at 4%, which is somewhat surprising given the strength of the dollar. Motor vehicles are up 1.8% reflecting the strong performance of auto sales and assemblies in 2015.

    Intermodal growth of only 2.6% is disappointing, but this includes international freight which was significantly impacted by the west coast port strike. Lower fuel prices and more readily available truck capacity have undoubtedly slowed domestic intermodal growth in 2015.

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    Source: Weekly Railroad Traffic, AAR

  • Ocean Freight

    Ocean spot rates continue to decline from peak levels during port strike

    - by Tom Sanderson

    East and west coast spot market oceans rates have fallen sharply since the conclusion of the west-coast port strike. East cost rates are down 26% while west coast rates are down 34% year-over-year. East coast rates are now at lows not seen since late 2011 while west coast rates are lower than any seen in the last five years.  From the peak rate of $5,049 per FEU on February 13, east coast rates have fallen in all but two weeks and are now 47.8% below peak at $2,635, a drop of over $2,400. The west coast peak was the same week at $2,265 per FEU. Those rates have dropped by a very similar 48.1% to $1,175, a drop of about $1,100.

    The spread between east and west-coast ports has declined from a peak of $2,937 on 2/27 to $1,460 on 7/17. The spread has not been this low since May of 2014. There could be continued convergence as the premium has been less than $1,000 at some times. Carrier’s clearly exercised their market power during the strike as shippers diverted freight to the east coast, but now spot rates have corrected to levels lower than those preceding the strike.

    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

  • Housing Starts, Sales, and Inventory

    Housing starts back above 1.1 million unit annual pace in June

    - by Tom Sanderson

    Housing starts totaled 1,174k in June (seasonally adjusted annual rate – SAAR) up 9.8% from last month. Two of the last three months have exceeded a 1.1 million annual pace. Starts were 26.6% above the June 2014 rate of 927k. June starts exceeded expectations (1,125k). Single family starts totaled 685k (SAAR), 0.9% below May’s 691k, but  up 14.7% year-over-year. In addition to exceeding June expectations, several prior months were also revised upwards. Overall, a very positive month.

    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%. At midyear, the rate of growth has gained momentum from 2014 as 2015 YTD starts are up 10.9% at 533k. 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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  • Morgan Stanley Graphs

    Refrigerated capacity is not nearly as tight as in previous years

    - by Tom Sanderson

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity remains more readily available than normal for this time of year. Refrigerated capacity began 2015 the same way it ended 2014, significantly tighter than normal. Throughout Q2, the market shifted with the result being that capacity was not nearly as constrained as normal for Q2. The index is now lower than at any point in 2014, and lower than any year since 2009 for this time of year. The index has been declining for the last few months, and it appears capacity may not tighten for the balance of 2015. We do believe that in 2016 refrigerated rates will likely rise faster than the broader truckload market as little capacity is entering the industry and intermodal is not as strong for refrigerated freight. Demand for refrigerated transportation is less correlated to economic fluctuations than dry van or flatbed freight, so the future robustness of economic growth will not necessarily determine demand 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.

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    Graph reproduced with permission from Morgan Stanley. *2006-2014 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 not likely to tighten in 2015

    - by Tom Sanderson

    Morgan Stanley’s flatbed freight index indicates that flatbed capacity had modestly tightened but at a much slower pace than normal for Q2 and in a pattern very similar to 2013. As we enter Q3, the slope of the line is headed back down indicating capacity is loosening again. Flatbed capacity is much more readily available than is normal for this time of year. Flatbed capacity tightened a little later than normal in 2014 but then remained tight longer than normal. Flatbed capacity-demand balance favored the carriers over the shippers more so in 2014 than in the previous two years, but capacity never became as tight last year as in 2010 and 2011. Low oil prices and a falloff in drilling activity likely means that capacity will not tighten much in 2015. 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. *2006-2014 average trend line excludes financial crisis years of 2008 and 2009. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com

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