Archive for February, 2017

  • Retail & Same Store Sales

    Retail sales show strong growth in January

    - by Tom Sanderson

    Retail sales show strong growth in January

    The U.S. Bureau of the Census reported that seasonally adjusted real retail and food service sales decreased 0.2% to $193.4 billion in January. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). January sales were 2.9% higher than the prior-year period.

    Nominal (unadjusted for inflation) seasonally-adjusted retail sales totaled $472.1 billion in January (second graph), up 0.4% from prior month, and up 5.6% from prior year results. Prior to January, year-over-year sales growth had not exceeded 5% since August 2014. Total nominal sales were up 3.3% for the full year 2016.

    The results were above consensus expectations and December was revised upward, a strong month. Nominal retail and food services sales excluding gasoline were up 4.7% year-over-year. Nonstore retailer sales (e-commerce and mail order) were up 12.0%. Gasoline station sales were up 14.2% year-over-year, a reversal from most of 2016 – full-year sales were down 6.3%. Even department stores saw gains in January with sales up 1.2% year-over-year, while electronics and appliances store sales were up 1.6%. We focus primarily on real retail sales because they are a better indicator of freight volumes than the inflated figures.

     

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  • Morgan Stanley Graphs

    Van capacity more readily available in February than in January

    - by Tom Sanderson

    Van capacity more readily available in February than in January

    In early 2017, van capacity is tighter than in early 2016 but is more readily available than normal for this time of year. The index has fallen In February, indicating greater excess van capacity than was the case in January.

    Capacity started to tighten up a little through July of 2016, but then the index flattened out through November. In December, capacity tightened and the index reached its highest level of 2016. That was a very different pattern than 2015, when capacity was at it tightest in January and became more readily available throughout the year.

    While the negative impact on capacity of ELDs will not be felt until late 2017, any acceleration in the freight economy could lead to tighter van capacity by the middle of  2017. In most years, capacity is getting tighter as we head into March, but that is not the case in 2017. If there is a surge in freight volumes in Q2, capacity will tighten and we will see upward rate pressure, but it is not at all clear that we will see demand increase enough in Q2 to absorb the excess capacity in the market today. 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.

    MS 2-21-17 van

    Graph reproduced with permission from Morgan Stanley. *2006-2016 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 is abundant in February

    - by Tom Sanderson

    Refrigerated capacity is abundant in February

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity begins 2017, slightly tighter than last year, but more readily available than normal for February. It also appears that refrigerated capacity is more readily available now than it was in January.

    For most of 2016, refrigerated capacity was more readily available than in 2015, but in Q4 the lines crossed indicating a tighter capacity environment than in the prior year. Capacity continued to tighten through the end of January but has eased since then. Refrigerated capacity began 2015 the same way it ended 2014, significantly tighter than normal. Throughout Q2 of 2015, the market shifted with the result being that capacity was not nearly as constrained as normal. That was even more so the case in Q3 and Q4, as the index dropped to a level lower than in any recent year, including 2009. For the last 18 months, the index has been very stable at a level reflecting excess refrigerated capacity.

    We do not believe that refrigerated rates will increase much in the first half of 2017, but later in the year we could see some increases as smaller refrigerated carriers adopt ELDs and see equipment utilization drop by 4-5%.  Demand for refrigerated transportation is less correlated to economic fluctuations than dry van or flatbed freight, so the future robustness of GDP growth will not determine demand growth 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.

    MS 2-21-17 reefer

    Graph reproduced with permission from Morgan Stanley. *2006-2016 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 is readily available early in 2017

    - by Tom Sanderson

    Flatbed capacity is readily available early in 2017

    Morgan Stanley’s flatbed freight index indicates that flatbed capacity is tighter than early 2016 but more readily available than the 11-year average for early in the year. In 2016, flatbed capacity was more readily available than was the case in 2015 until the last 6 weeks of the year, when the lines crossed. 2016 was a year of remarkable excess capacity in the flatbed market, quite similar to 2009 (that has now dropped off the chart). The last twelve months have seen unusual stability in the flatbed index considering the historical seasonal volatility of capacity-demand balance. With the ELD mandate not coming until December (well after the peak time of year for flatbed demand), it seems likely that we will not see significant tightening of flatbed capacity in 2017.

    Flatbed capacity-demand balance favored the carriers over the shippers more so in 2014 than in the prior two years, but capacity never became as tight in 2014 as in 2010 and 2011. Low oil prices and a falloff in drilling activity meant that capacity never did tighten 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.

    MS 2-21-17 flat

    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

    New home inventories rise on slower sales results

    - by Tom Sanderson

    New home inventories rise on slower sales results

    According to the U.S. Census Bureau and the Department of Housing and Urban Development, single-family new home inventories increased to 259k in December (seasonally adjusted). Inventories are now at the highest level since August 2009. December’s new home inventories were 24k (10.2%) above the prior-year level of 235k. New home inventories still remain low by historical standards.

    The growth in inventories in the last year (seasonally adjusted) has been driven by homes under construction (+10K) and homes not yet started (+9k), more so than by and homes completed (+5k).

    New home inventories increased slowly during the first 9 months of 2016, from 239k in January to 242k in September, but then jumped in the fourth quarter. In 2015, inventories rose faster than in 2016, from 208k in January to 235k in December. Inventory levels increased 23k throughout 2014, peaking at 212k in December. 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.

    Seasonally adjusted new home inventories rose to 5.8 months of supply in December, from 5.2 months a year ago and 5.0 months in November. Sales of new single-family houses fell to 536k (seasonally adjusted annual rate), down 10.4% from revised prior month sales and down 0.4% from prior year. Year-to-date absolute sales of 563k were up 12.2% from 501k in 2015.

    Full year 2015 new home sales were up 14.6% over 2014. 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 with only one exception. In 2015, eight months were at 5.0 or greater months of supply, including each of the last 7 months of the year. In 2016, only one month (July) was less than 5.0. The average months of supply over the last 50 years is 6.1, so current new home inventory remain 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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  • ISM Manufacturing Index

    Manufacturing, New Orders, and Production Indexes reach highest point since November 2014

    - by Tom Sanderson

    Manufacturing, New Orders, and Production Indexes reach highest point since November 2014

    The Institute of Supply Management (ISM) reported that the Purchasing Managers’ Index (PMI) rose to 56.0 in January from 54.5 in December. After December posted the highest index level of 2016, January got 2017 off to a great start with the highest manufacturing index since November 2014. After contracting in August 2016, the manufacturing sector has expanding at a strong pace.  PMI came in above expectations (55.0). The New Order Index rose by 0.1 points to 60.4. The Production Index rose by 2.0 points to 61.4. Both of these indexes registered their highest levels since November 2014. Of 18 manufacturing industries, 12 reported monthly growth in January.

    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 did not see a reading above 53.9 in 2015, and that high mark was reached in January. In 2016, the index ranged from 48.2 (Jan) to 54.5 (Dec) but it was not a steady rise, with manufacturing contracting in February and August. 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 most other areas of the economy.

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