Archive for September, 2015

  • Housing Starts, Sales, and Inventory

    Strong new home sales drive down months of supply despite level total inventory

    - by Tom Sanderson

    Single-family new home inventories increased by 1k to 216k in August (seasonally adjusted). Inventory levels slowly increased throughout 2014, peaking at 212k in December, but drifted down in the first 4 months of this year before rising slightly over the last 4 months. August’s new home inventories were 11k (5.3%) above the prior-year level of 205k. 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 (+8k) and homes under construction (+6k), not by completed homes (down 3k). From year-end, homes not yet started are up 4k while homes under construction are up 8k and completed homes are down 8k.

    Seasonally adjusted new home inventories fell to 4.7 months of supply in August down from 5.4 months a year ago and 4.9 months in July. Sales of single-family houses were very strong at 552k, up 21.6% over prior year and 5.7% from July. YTD new home sales are up 21.1%. 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, six of the first eight 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 continue to fall

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices fell 1.7 cents to $2.476 per gallon on September 28th,  the 17th decrease in the last 18 weeks, totaling 43.8 cents. Diesel prices are at the lowest point since June 2009 and are 34% below prior-year levels. As of September 9, the Energy Information Administration (EIA) slightly lowered its pricing forecast to $2.73 per gallon average for 2015 and $2.77 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 six years for September.

    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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  • Auto Sales & Assemblies

    August auto sales at high point for year

    - by Tom Sanderson

    Annualized seasonally adjusted U.S. sales (SAAR) of domestic and foreign autos and light trucks increased to 17.7 million in August, beating expectations (17.2 million), and remaining at or above a 17-million unit annual pace for four consecutive months. Sales were  2.9% above prior year sales and were up 1.4% 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 3.4%.

    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 down in August

    - by Tom Sanderson

    Annualized U.S. assemblies of autos and light trucks fell 1.2.% to 11.5 million units in August (seasonally adjusted), and were down 1.0% from August 2014. The drop-off from July is not surprising as July had posted one of the highest reported seasonally adjusted auto assembly totals in history. Only in May 2015 and July 2014 had assemblies exceeded a 12-million unit pace since the recession. Non-seasonally adjusted assemblies totaled an 11.7 million unit pace, an increase from July, which is typically a slower month for assemblies due to plant shutdowns. Our graph is a three-month moving average of seasonally adjusted annualized assemblies. Using this moving average, year-over-year growth was 2.2% in August, a big drop from the prior 3 months. 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 we have been above that level in each of the last 6 months.

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  • Ocean Freight

    Ocean spot rates remain low

    - by Tom Sanderson

    East and west coast spot market oceans rates remain volatile but at far lower levels since the conclusion of the west-coast port strike. East coast rates are down 44% while west coast rates are down 34% year-over-year. After a brief uptick, East coast rates are now at levels not seen since December of 2009. West coast rates have not declined as quickly since the recent uptick, but still remain near the low point of the last five years.  From the peak rate of $5,049 per FEU on February 13, east coast rates have fallen 52% to $2,427, a drop of over $2,600. The west coast peak was the same week at $2,265 per FEU. Those rates have dropped less (39%) to $1,379, a drop of about $900.

    The spread between east and west-coast ports has declined from a peak of $2,937 on 2/27 to $1,048 on 9/18. The spread has not been this low since November of 2012. There could be modest 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 considerably lower than those preceding the strike.

    The SCFI reflects spot market rates for the Shanghai export container transportation market.

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  • ISM Manufacturing Index

    Manufacturing grew at a slower rate in August

    - by Tom Sanderson

    The Institute of Supply Management (ISM) reported that the Purchasing Managers’ Index decreased to 51.1 in August from 52.7 in July. PMI came in below expectations (52.8) and indicated the slowest rate of growth since May 2013. August was the thirty-second consecutive month of expansion. The New Order Index fell to 51.7, down 4.8 points from July. The Production Index fell 2.4 points from 56.0 to 53.6. Of 18 manufacturing industries, 10 reported monthly expansion, down from 11 last month. 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 have yet to see a reading above 53.5 so far this year. 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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  • Morgan Stanley Graphs

    Refrigerated capacity is more readily available than at any point since 2009

    - by Tom Sanderson

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity remains much 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. That was even more so the case in Q3. The index is now lower than at any point in any year since 2009. The index has been declining for the last few months, and it appears capacity will 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-demand balance similar to 2009

    - by Tom Sanderson

    Morgan Stanley’s flatbed freight index indicates that flatbed capacity in more readily available for this time of year than in any of the previous 6 years, including the recession of 2009. Flatbed capacity had modestly tightened through June, but has eased substantially since then. Since the index never rose very far in 2015, it did not have a long way to fall to reach 2009 levels.

    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 meant that capacity did 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

  • Morgan Stanley Graphs

    Dry van capacity demand balance back to recessionary levels

    - by Tom Sanderson

    Morgan Stanley’s dry van truckload index indicates that van capacity is more readily available now than even during the recession year of 2009. Capacity is much more readily available than last year at this time or during late September in any year since 2009. The graph shows that the capacity-demand balance line is at the lowest point in the last 6 years. While there were seasonal regional shortages of capacity in Q2, in general capacity simply did not tighten throughout Q2 or Q3. Through May, this year had been tracking 2013, but that is no longer the case. It is not clear to what extent the additional availability is driven by weaker freight, hours-of-service rollback, or actual capacity additions, but all three are likely contributors. We now think that we will see very little tightening of van capacity as we move through peak fall shipping, but do expect some tightening of capacity in 2016 unless the economy softens. 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. *2006-2014 average trend line excludes financial crisis years of 2008 and 2009. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com

  • Housing Starts, Sales, and Inventory

    Housing starts drop in August, but show strong year-over-year growth

    - by Tom Sanderson

    Housing starts totaled 1.126 million in August (seasonally adjusted annual rate – SAAR) down 3% from last month. Starts were 16.6% above the August 2014 rate. August starts were below expectations and July and June starts were revised downwards.. Single family starts totaled 739k (SAAR), also 3% below July starts but up 14.9% year-over-year. In all, it was not a very strong month for housing starts compared to expectations.

    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 11.5% at 743.3k. 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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