Archive for March, 2017

  • Housing Starts, Sales, and Inventory

    New home inventories rise despite surge in sales

    - by Tom Sanderson

    New home inventories rise despite surge in sales

    According to the U.S. Census Bureau and the Department of Housing and Urban Development, single-family new home inventories increased to 266k in February (seasonally adjusted). Inventories are now at the highest level since July 2009. February’s new home inventories were 24k (9.9%) above the prior-year level of 242k. New home inventories still remain somewhat low by historical standards, but are closing in on longer run average inventory levels (~340k).

    The growth in inventories in the last year (seasonally adjusted) has been driven by homes not yet started (+14k) and homes under construction (+7K), more so than by homes completed (+3k).

    New home inventories increased slowly during the first 9 months of 2016, from 239k in January to 242k in September, but then jumped to 256k by December, an increase of 17k from January. In 2015, inventories rose 27k; from 208k in January to 235k in December. Inventory levels increased 23k throughout 2014, peaking at 212k in December, and rose 38k in 2013, to 187k by December. The last year of flat inventories was 2012, when the absolute inventory of new homes remained within a consistent range of 142k – 150k.

    Seasonally adjusted new home inventories dropped to 5.4 months of supply in February, down slightly from from 5.5 months a year ago. Sales of new single-family houses increased to 592k (seasonally adjusted annual rate), up 6.1% from revised prior month sales and up 12.8% from prior year. Full-year 2016 sales of 560k were up 11.8% 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 slightly 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 increased in February

    - by Tom Sanderson

    Housing starts increased in February

    Housing starts totaled 1.288 million in February (seasonally adjusted annual rate – SAAR) up 3.0% from prior month’s revised figures, and up 6.2% from February 2016 results, and were above expected levels. Single family starts totaled 872k (SAAR), up 6.5% from January and up 3.2% year-over-year. Starts of multi-unit (5+)structures were 396k (SAAR) down 7.7% from January but up 11.2% over prior year. Total starts exceeded a 1.0 million unit annual pace for the 23rd straight month, and February starts were higher than all but 1 month (October) in 2016.

    For the full year 2016, total starts were 1.174 million, up 5.6% over 2015. Single unit starts led the way with 9.4% growth, while multi-unit starts declined by 1.3%. In the prior couple of years single-unit starts grew more slowly than multi-unit starts. For the full year 2015, total starts were 1.112 million, up 10.8% over 2014. Single unit starts were up 10.3% in 2015, while 5+ unit starts were up 12.9%. 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%.

    There remains a lot of ground to cover for the housing sector to fully recover from the recession. Housing starts are still well 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 more than 320 million. Some economists believe that slower population growth and household formation in the U.S. means 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

    Dry van capacity has not tightened yet

    - by Tom Sanderson

    Dry van capacity has not tightened yet

    As we near the end of Q1, van capacity is tighter than in Q1 2016 but is more readily available than normal for this time of year. The index has fallen from January, indicating greater excess van capacity than was the case earlier this year.

    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 gets tighter as we enter 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 Van 3-21

    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 remains abundant late into Q1

    - by Tom Sanderson

    Refrigerated capacity remains abundant late into Q1

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity is slightly tighter than last year, but more readily available than normal for March. It also indicates 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 reefer 2-21

    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 tightening more so than van or reefer capacity

    - by Tom Sanderson

    Flatbed capacity is tightening more so than van or reefer capacity

    Morgan Stanley’s flatbed freight index indicates that flatbed capacity is getting tighter and is tighter than was the case in either of the last two years for late March. The index is just below the 11-year average for March. 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. Flatbed capacity has continued to tighten so far this year. 2016 was a year of unusual stability and remarkable excess capacity in the flatbed market. 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, although Q2 could feel tight compared with the last 2 years.

    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 or 2016. 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 flat 3-21

    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

  • Diesel Fuel Prices

    Diesel prices drop for second straight week

    - by Tom Sanderson

    Diesel prices drop for second straight week

    Weekly retail on-highway U.S. diesel prices decreased by 2.5 cents to $2.539 per gallon on March 20. Diesel has ranged between 2.53 and 2.60 per gallon since 12/19, showing remarkably stability over the last 4 months.

    In February 2016, diesel prices reached their lowest level ($1.980) since January 2005, dropping below the recessionary trough, before rebounding throughout the rest of the year, finally crossing the $2.50/gallon mark on 12.19. The last year that diesel did not hit $2.50 per gallon all year was 2004. We have been above that level all year to this point.

    Diesel prices are 42 cents per gallon higher than one year ago, but are 32.5 cents per gallon lower than two years ago. Diesel prices had stabilized between August 24 and November 16 of 2015, with a high of $2.561 and a low of $2.476 during those 13 weeks, but were in steady decline between then and February 2016 before beginning a steady climb. On March 7, the Energy Information Administration (EIA) updated its pricing forecast to 2.70 per gallon for 2017, anticipating further increased this year.

    A view of weekly prices over the last 6+ years (second chart) indicates fairly stable prices between Q2 2011 and the start of the 2015 slide (min of $3.65 and max of $4.16). We remain well below that range, but have passed beyond the late 2015 price levels. Diesel is well below the March price level in each of the five years prior to 2016.

    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

    US auto assemblies remain in holding pattern at 11.7 million units

    - by Tom Sanderson

    US auto assemblies remain in holding pattern at 11.7 million units

    Annualized U.S. assemblies of autos and light trucks increased 0.8% to 11.67 million units in February (seasonally adjusted), but were down 2.5% from prior year. Seasonally adjusted assemblies have been above an 11-million unit pace since March 2015, but have only been above a 12-million unit pace once in the last 8 months. Our graph is a three-month moving average of seasonally adjusted annualized assemblies. Using this moving average, year-over-year assemblies were down 0.5% and have hovered around or under 0 since May 2016.

    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 have been averaged 11.7 and 11.8 million units in 2015 and 2016 respectively.

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  • Retail & Same Store Sales

    Retail sales show second consecutive month of strong year-over-year growth

    - by Tom Sanderson

    Retail sales show second consecutive month of strong year-over-year growth

    The U.S. Bureau of the Census reported that seasonally adjusted real retail and food service sales were steady -0.04% at $193.4 billion in February. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). February sales were 2.8% higher than the prior-year period.

    Nominal (unadjusted for inflation) seasonally-adjusted retail sales totaled $474.0 billion in February (second graph), also flat +0.08% with prior month, and up 5.7% from prior year results. Prior to January, year-over-year sales growth had not exceeded 5% since August 2014, but have now exceeded that level in consecutive months. Total nominal sales were up 3.3% for the full year 2016.

    The results were at consensus expectations and January was revised upward; a solid month. Nominal retail and food services sales excluding gasoline were up 4.5% year-over-year. Nonstore retailer sales (e-commerce and mail order) were up 13.0%. Gasoline station sales were up 19.6% year-over-year, a reversal from most of 2016 when full-year sales were down 6.3%. Department stores sales fell by 5.6% year-over-year, while electronics and appliance store sales fell by 6.0%. 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 flat in February, down slightly YTD

    - by Tom Sanderson

    Auto sales flat in February, down slightly YTD

    Annualized seasonally adjusted U.S. sales (SAAR) of domestic and foreign autos and light trucks were flat at 17.5 million in February, coming in below the consensus forecast (17.7 million). Sales were 0.8% below prior year sales and were down 0.1% from prior month. Year-over-year sales for our three month moving average (graphed) was up 0.9%. Imported and domestic light truck sales performed much more strongly than car sales. Total year-to-date sales are down 1.4% over 2016, with light trucks up 6.6% and cars down 12.8%. Light trucks accounted for 64% of all unit sales year-to-date. After several years of rising sales, we seem to have reached a plateau in auto and light truck sales (red line on graph).

    Sales set an all time record in 2016 at 17.46 million following 2015’s then-record level of 17.40 million. To put those numbers in perspective though, they narrowly eclipsed 2000 (17.35 million) and 2001 (17.12 million). In 2017, sales are expected to be flat, but with inventories high, production is likely to be down from 2016 levels.

    Full-year sales total for 2014 were 16.5 million up 6% from 15.6 million in 2013 and right in line with the prerecession 2001-2007 average (16.7 million). 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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  • Housing Starts, Sales, and Inventory

    New home inventories rise, but sales are also up

    - by Tom Sanderson

    New home inventories rise, but sales are also up

    According to the U.S. Census Bureau and the Department of Housing and Urban Development, single-family new home inventories increased to 265k in January (seasonally adjusted). Inventories are now at the highest level since August 2009. December’s new home inventories were 26k (10.9%) above the prior-year level of 239k. New home inventories still remain somewhat low by historical standards, but are closing in on longer run average inventory levels.

    The growth in inventories in the last year (seasonally adjusted) has been driven by homes not yet started (+13k) and homes under construction (+8K), more so than by 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 to 256k by December, an increase of 17k from January. In 2015, inventories rose 27k, from 208k in January to 235k in December. Inventory levels increased 23k throughout 2014, peaking at 212k in December, and rose 38k in 2013 to 187k by December. The last year of flat inventories was 2012, when the absolute inventory of new homes remained within a consistent range of 142k – 150k.

    Seasonally adjusted new home inventories held steady at 5.7 months of supply in January, up slightly from from 5.5 months a year ago. Sales of new single-family houses increased to 555k (seasonally adjusted annual rate), up 3.7% from revised prior month sales and up 5.5% from prior year. Full-year 2016 sales of 561k were up 12.0% 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 slightly 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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