Archive for October, 2015

  • Morgan Stanley Graphs

    Dry van capacity-demand index drops below Fall 2009 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. The graph shows that the capacity-demand balance line is at the lowest point in the last 6 years for Q4. While there were seasonal regional shortages of capacity in Q2, in general capacity not only did not tighten through Q3 but actually became more readily available. Three factors are driving excess capacity: weaker freight, hours-of-service rollback, and actual capacity additions. We are seeing no 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

  • Morgan Stanley Graphs

    Refrigerated capacity readily available early in Q4

    - 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 as the index dropped to a level lower than at any point in any year since 2009. The index has leveled off in Q4 and it seems clear 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 surplus stabilizes at Fall 2009 levels

    - 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.The falloff seems to have stabilized over the last month.

    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

  • Housing Starts, Sales, and Inventory

    Housing starts above 1.2 million unit annual pace in September

    - by Tom Sanderson

    Housing starts totaled 1.206 million in September (seasonally adjusted annual rate – SAAR) up 6.5% from last month. Starts were 17.5% above the September 2014 rate and were above expectations, primarily due to strong multi-family starts. Single family starts totaled 740k (SAAR), virtually unchanged from August but up 12.0% year-over-year. Total starts exceeded a 1.2 million unit annual pace for only the second time since 2007.

    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 12.0% at 853.5k. 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 falling again

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices fell 3.3 cents to $2.498 per gallon on October 26th,  the 19th decrease in the last 22 weeks, totaling 41.6 cents. Diesel prices have not quite retreated to the recent low point of $2.476 on 9/28 but are 31% below prior-year levels. As of October 6, the Energy Information Administration (EIA) slightly lowered its pricing forecast to $2.72 per gallon average for 2015 but held its 2016 forecast at $2.77.

    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 October.

    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

    Retail sales flat in September

    - by Tom Sanderson

    Seasonally adjusted real retail and food service sales were virtually unchanged at $188.4 billion in September, a 0.3% increase from August. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). September sales were 2.4% higher than the prior-year period. Nominal (unadjusted for inflation) retail sales totaled $447.7 billion in September (second graph), representing a 2.4% year-over-year improvement, and 0.1% increase from August results. The results were in line with consensus expectation of growth, however August results were revised downward.  Nominal retail and food services sales excluding gasoline were up 4.8% year-over-year. For the trailing three-month period, nominal sales were up 2.5% year-over-year. The results were OK, but not strong.  We focus primarily on real retail sales because they are a better indicator of freight volumes than the inflated figures.

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  • Auto Sales & Assemblies

    Auto sales at 10-year high in September

    - by Tom Sanderson

    Annualized seasonally adjusted U.S. sales (SAAR) of domestic and foreign autos and light trucks increased to 18.1 million in September, beating expectations (17.5 million), and remaining at or above a 17-million unit annual pace for five consecutive months. Sales were  10.0% above prior year sales and were up 1.9% from prior month. Labor Day sales were recorded in September this year and there was one more selling day than in 2014 accounting for some of the year-over-year growth. This was the first month above an 18-million unit pace since July 2005. Imported and domestic 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 6.3%.

    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 13.0 million units, up 5.1% from 2014. 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

    Strong year-over-year growth for auto assemblies

    - by Tom Sanderson

    Annualized U.S. assemblies of autos and light trucks fell 0.4% to 12.0 million units in September (seasonally adjusted), but were up 6.4% from September 2014. Seasonally adjusted assemblies have been above a 12-million unit pace in 4 of the last 5 months. July posted one of the highest reported seasonally adjusted auto assembly totals in history. Our graph is a three-month moving average of seasonally adjusted annualized assemblies. Using this moving average, year-over-year growth was 6.0% in September, the best year-over-year gain since January. 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 7 months.

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  • ISM Manufacturing Index

    Manufacturing growth weakens in September

    - by Tom Sanderson

    The Institute of Supply Management (ISM) reported that the Purchasing Managers’ Index decreased to 50.2 in September from 51.1 in August. PMI came in below expectations (50.5) and indicated the slowest rate of growth since May 2013. September was the thirty-third consecutive month of expansion. The New Order Index fell to 50.1, down 1.6 points from August. The Production Index fell 1.8 points from 53.6 to 51.8. Of 18 manufacturing industries, 7 reported monthly expansion, down from 10 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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