Archive for May, 2017

  • Housing Starts, Sales, and Inventory

    Housing starts down in April due to multi-family drop

    - by Tom Sanderson

    Housing starts down in April due to multi-family drop

    Housing starts totaled 1.172 million in April (seasonally adjusted annual rate – SAAR) down 2.6% from prior month’s revised figures, but up 0.7% from April 2016 results, and were below expected levels. Single family starts totaled 835k (SAAR), down 0.4% from March and up 8.9% year-over-year. Starts of multi-unit (5+)structures were 328k (SAAR) down 9.6% from March and down 14.6% over prior year. Total starts exceeded a 1.0 million unit annual pace for the 25rd straight month. Year-to-date starts are up 5.3%

    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%.

    Despite several years of strong growth, 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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  • Retail & Same Store Sales

    Retail sales increase in April

    - by Tom Sanderson

    Retail sales increase in April

    The U.S. Bureau of the Census reported that seasonally adjusted real retail and food service sales were up slightly (+0.2%) at $194.5 billion in April. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). April sales were 2.2% higher than the prior-year period.

    Nominal (unadjusted for inflation) seasonally-adjusted retail sales totaled $474.9 billion in April (second graph), also up slightly (+0.4%) from prior month, and up 4.5% from prior year results. Total nominal sales were up 3.3% for the full year 2016.

    The results were below consensus expectations but March was revised upward. Nominal retail and food services sales excluding gasoline were up 0.4% year-over-year. Nonstore retailer sales (e-commerce and mail order) were up 11.9%. Gasoline station sales were up 12.3% year-over-year, a reversal from most of 2016 when full-year sales were down 6.3%. Department stores sales fell by 3.7% year-over-year, while sporting goods, hobby and book store sales fell by 2.4%. 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 continue to fluctuate within a narrow band

    - by Tom Sanderson

    Diesel prices continue to fluctuate within a narrow band

    Weekly retail on-highway U.S. diesel prices decreased by 0.5 cents to $2.539 per gallon on May 22, continuing a trend of very modest fluctuations up and down in every week this year. Diesel has ranged between 2.53 and 2.60 per gallon since 12/19, never rising by more than 4.6 cents or falling by more than 2.5 cents in any week during that period.

    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 18.2 cents per gallon higher than one year ago, but are 37.5 cents per gallon lower than two years ago. On May 9, the Energy Information Administration (EIA) decreased its pricing forecast to 2.65 per gallon for 2017, so still anticipates further increases 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). Diesel prices then 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 slow but steady climb.Diesel remains below the May 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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  • Uncategorized

    Van capacity-demand balance is close to “average” levels for early May

    - by Tom Sanderson

    Van capacity-demand balance is close to “average” levels for early May

    Entering May, van capacity is tighter than in May 2016, is almost identical to 2015 and 2013, and is getting closer to the longer term average for this time of year. The index has recovered most of its falloff from January into February.

    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 Q3 of  2017. In most years, capacity gets tighter as we enter Q2, but that is only marginally true in 2017. If there is a surge in freight volumes later 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 05-02-17 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 tightening at a very slow pace nearly half way through Q2

    - by Tom Sanderson

    Refrigerated capacity is tightening at a very slow pace nearly half way through Q2

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity is tighter than last year, similar to 2015, and very close to the long-term trend line for early May. It also indicates that refrigerated capacity is more readily available now than it was in January, which is not an uncommon pattern.

    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 and the late Q1, early Q2 ramp-up is not as pronounced as normal. For the last 18 months, the index has been very stable at a level reflecting excess refrigerated capacity.

    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.

    We do not believe that refrigerated rates will increase much in Q2 or Q3, 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 05-02-17 reefer

    Graph reproduced with permission from Morgan Stanley. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com

  • Morgan Stanley Graphs

    Flatbed capacity continues to tighten, closing in on “average” capacity-demand balance levels

    - by Tom Sanderson

    Flatbed capacity continues to tighten, closing in on “average” capacity-demand balance levels

    Morgan Stanley’s flatbed freight index indicates that flatbed capacity continues to tighten and is tighter than was the case in either of the last two years for early May. The index is just below the 11-year average for May so it would still be hard to argue that capacity is tight. 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 and at a pretty steep pace the last two months.

    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 is possible that we will not see significant tightening of flatbed capacity in 2017, but if the slope of the line continues through the remainder of Q2 and into Q3, flatbed capacity may be in short supply this summer.

    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 05-02-17 flat

    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

  • ISM Manufacturing Index

    Manufacturing remains strong in April

    - by Tom Sanderson

    Manufacturing remains strong in April

    The Institute of Supply Management (ISM) reported that the Purchasing Managers’ Index (PMI) fell slightly to 54.8 in April from 57.2 in March. So far every month of 2017 has had a higher index than any month of 2016. After contracting in August 2016, the manufacturing sector has expanded at a strong pace.  PMI came in below expectations (56.5). The New Order Index fell by 7 points to 57.5. The Production Index increased by 1.0 points to 58.6. Of 18 manufacturing industries, 16 reported monthly growth in April.

    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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  • Diesel Fuel Prices

    Diesel prices remain in narrow range

    - by Tom Sanderson

    Diesel prices remain in narrow range

    Weekly retail on-highway U.S. diesel prices decreased by 1.2 cents to $2.583 per gallon on May 1, continuing a trend of very modest fluctuations up and down in every week this year. Diesel has ranged between 2.53 and 2.60 per gallon since 12/19, never rising by more than 4.6 cents or falling by more than 1.2 cents in any week during that period.

    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 31.7 cents per gallon higher than one year ago, but are 27.1 cents per gallon lower than two years ago. Diesel prices 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 April 11, the Energy Information Administration (EIA) held its pricing forecast at 2.69 per gallon for 2017, still anticipating further increases 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 risen above the late 2015 price levels. Diesel remains below the May 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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