Archive for December, 2015

  • Housing Starts, Sales, and Inventory

    New home inventories rise despite increase in sales

    - by Tom Sanderson

    Single-family new home inventories increased by 5k to 232k in November (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 again over the last 7 months. November’s new home inventories were 22k (10.5%) above the prior-year level of 201k. 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 (+18k), not by completed homes (down 4k). From year-end, homes not yet started are up 7k while homes under construction are up 17k and completed homes are down 4k.

    Seasonally adjusted new home inventories fell to 5.7 months of supply in November, up from 5.6 months a year ago but down from 5.8 months in October. Sales of single-family houses rose to 490k, up 4.3% from prior month and up 9.1% from prior year. YTD new home sales are up 14.5%. 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, seven of the first eleven months have been at 5.0 or greater months of supply, including each of the last 6 months. 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 surge in November

    - by Tom Sanderson

    Housing starts totaled 1.173 million in November (seasonally adjusted annual rate – SAAR) up 10.5% from last month. Starts were 16.5% above the November 2014 rate and were above expectations. Single family starts totaled 768k (SAAR), up 7.6%% from October and up 14.6% year-over-year. This was the highest level of single family starts since January 2008. Total starts exceeded a 1.0 million unit annual pace for the 8th straight 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%.

    The rate of growth gained momentum from 2014, as 2015 YTD starts are up 11.0% at 1.032 million. 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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  • Retail & Same Store Sales

    Retail sales show slow growth in November

    - by Tom Sanderson

    Seasonally adjusted real retail and food service sales rose to $188.2 billion in November, a 0.2% increase from October. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). November sales were 1.1% higher than the prior-year period. Nominal (unadjusted for inflation) retail sales totaled $448.1 billion in November (second graph), representing a 1.4% year-over-year improvement, and 0.2% increase from October results. The results were below consensus expectation of growth (+0.3%).  Nominal retail and food services sales excluding gasoline were up 3.7% year-over-year. For the trailing three-month period, nominal sales were up 1.7% year-over-year. The results were weak, but excluding gasoline, 3.7% year-over-year growth is not bad.  We focus primarily on real retail sales because they are a better indicator of freight volumes than the inflated figures.

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  • Diesel Fuel Prices

    Diesel prices drop again; now within 21 cents of recessionary low point

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices fell 4.9 cents to $2.235 per gallon on December 28th,  the 7th straight weekly decrease, totaling 26.7 cents. Diesel prices have reached their lowest level since May 2009 and are 30% below prior-year levels. Diesel prices had stabilized between August 24 and November 16, with a high of $2.561 and a low of $2.476 during those 13 weeks. On December 8, the Energy Information Administration (EIA) dropped its pricing forecast by 3 cents to a $2.67 per gallon average 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. Diesel is below the price level in each of the last six years for December.

    Diesel experienced a high but narrow pricing environment throughout 2013, fluctuating between a 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

    Auto and light truck sales top 18-million unit annual pace for 3rd consecutive month for the first time ever

    - by Tom Sanderson

    Annualized seasonally adjusted U.S. sales (SAAR) of domestic and foreign autos and light trucks fell slightly to 18.06 million in November, beating expectations (18.0 million), and remaining at or above a 17-million unit annual pace for seven consecutive months and above an 18-million unit pace for three straight months. Sales were  6.1% above prior year sales despite 2 fewer selling days and were down 0.4% from prior month. Back-to-back-back months at that pace has never happened in the past. Imported and domestic light truck sales performed much 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. Annual U.S. auto and light truck sales only exceeded 17 million units in 2000 and 2001, peaking at 17.35 million in 2000. It is possible that 2015 will set a unit-sales record at around 175. million. Year-over-year growth for our three month moving average was 8.7%.

    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 will clearly be the first since 2001 with more than 17 million units sold. Year-to-date sales are at 15.8 million units, up 5.5% 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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    Source: Federal Reserve Bank of St. Louis

  • Morgan Stanley Graphs

    Flatbed capacity-demand balance finishes the year with greater capacity availability than in any of the previous 6 years

    - 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 few months.

    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

  • Highway Funding

    How Congress negotiates with itself to the detriment of taxpayers

    - by Tom Sanderson

    I am still perusing the 1,301 page highway bill to better understand its implications for freight transportation and infrastructure spending over the next 5 years, but today I was reading the “Joint Explanatory Statement of the Committee of the Conference”, that in 56 pages summarizes some of the changes. The transfer from the General Fund (where we spend hundreds of millions of dollars per year more than we take in) to the Highway Trust Fund (where we spend tens of millions of dollars per year more than we take in) is a beauty that could only happen in DC. I quote the exact language from the document.

    Senate Language: “The Senate amendment provides that out of money in the Treasury not otherwise appropriated, the following transfers are to be made from the General Fund to the Highway Trust Fund: $34,401,000,000 to the Highway Account and $11,214,000,000 to the Mass Transit account.”

    House Language: “The House amendment provides that out of money in the Treasury not otherwise appropriated, the following transfers are to be made from the General Fund to the Highway Trust Fund: $25,976,000,000 to the Highway Account and $9 billion to the Mass Transit account.”

    “Compromise”: “The conference agreement provides that out of money in the Treasury not otherwise appropriated, the following transfers are to be made from the General Fund to the Highway Trust Fund: $51,900,000,000 to the Highway Account and $18,100,000,000 to the Mass Transit account.”

    Isn’t that a beauty. One side wants to spend $45.6 billion more than we have and the other side wants to spend $35 billion more than we have, so they compromise on spending $70 billion more than we have. It is almost as much as the two chambers proposed if added together.

    Federal gas and diesel taxes have not been raised since 1993. The nation has just recently dropped below one trillion dollars in annual deficits. There is tremendous inefficiency in federal highway spending. And the answer is to borrow $70 billion dollars over the next five years to fund infrastructure improvements. Pathetic.

    The new highway bill is called “FAST” , Fixing America’s Surface Transportation Act. The only thing FAST about this bill is the way it plays fast and loose with our tax dollars and federal deficit.

  • Diesel Fuel Prices

    Diesel hits lowest price since June 2009

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices fell 4.2 cents to $2.379 per gallon on December 7th,  the 24th decrease in the last 28 weeks, totaling 53.5 cents. Diesel prices have broken through the recent low point of $2.476 on 9/28 and are 33% below prior-year levels. Diesel prices had stabilized between August 24 and November 16, with a high of $2.561 and a low of $2.476 during those 13 weeks. On December 8, the Energy Information Administration (EIA) dropped its pricing forecast by 3 cents to a $2.67 per gallon average 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. Diesel is below the price level in each of the last six years for December.

    Diesel experienced a high but narrow pricing environment throughout 2013, fluctuating between a 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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  • ISM Manufacturing Index

    U.S. manufacturing sector contracts in November

    - by Tom Sanderson

    The Institute of Supply Management (ISM) reported that the Purchasing Managers’ Index decreased to 48.6 in November from 50.1 in October. PMI came in well below expectations (50.5) and was the worst performance since June 2009. The manufacturing sector contracted in November for the first time in 36 months. The New Order Index fell to 48.9, down 4.0 points from October. The Production Index fell 3.7 points from 52.9 to 49.2. Of 18 manufacturing industries, five reported monthly expansion, two less than 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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  • Carrier Rate Graphs

    TL rates up 4.3% year-over-year in Q3

    - by Tom Sanderson

    Stephens Inc. released their Q3-2015 update on publicly traded TL carriers reporting that rates per loaded mile excluding fuel surcharge increased by 4.3% over the same period last year, and increased 1.2% from Q2 of this year. Last quarter marked the twenty-second consecutive quarter of year-over-year TL rate increases.  TL rates remain just below the Q4 2014 peak. Contractual pricing is seeing modest increases, while spot market rates are down.

    Stephens expects 2016 rates to be up 2-4%, and I concur with that estimate. The dramatic decline in fuel prices has significantly lowered fuel surcharges, but that does not have any downward impact on linehaul rates. Quarterly data shows larger rate increases in the last six quarters than had been the case in 2012 and 2013. 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 slightly to 658 miles in Q3 from 650 in Q3 2014  Revenue per tractor per week was flat over Q3 2014 but remains high by historical standards. Miles per tractor per week were down year-over-year and remain well below historical averages due to shorter lengths of haul and hours of service regulations.

    TL q3 15 rates

    TL q3 15 rates b

    tl q3 15 rev per tractor

    tl q3 15 miles per tractor

    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.

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