Home sales slip while new construction grows

Home sales declined 0.4 percent in April, as would-be homebuyers face affordability challenges and a limited supply of starter houses. When the job market is solid and low mortgage rates, it’s typically favorable conditions for buyers.

The jobless rate has fallen to a five-decade low of 3.6 percent, while the average 30-year mortgage rate has declined to 4.07 percent from 4.61 percent a year ago. But buyers are grappling with home prices that have consistently risen faster than wages for much of the past seven years, construction and sales listings have not responded to pent-up demand from would-be buyers.

New construction on home projects picked up in April after a weak stretch. Building projects for single-family homes rose in every region of the U.S. except the South. Meanwhile, construction in the Northeast increased at the fastest pace in nearly two years. This building uptick suggests residential construction could boost economic growth in the second quarter more than expected.

April’s 5.7 percent rise for starts came with a margin of error of 13 percentage points. Home construction has been cooling more broadly, starts were down 7.2 percent in the first four months of 2019 compared with the same period a year earlier.

Retail sales disappoint

The Commerce Department reports that retail sales fell 0.2 percent in April, although this was preceded by a big 1.7 percent gain in March. Last month, sales were weaker because of large drops at electronics and appliance stores (-1.3 percent), auto dealerships (-1.1 percent), and building materials stores (-1.9 percent). Conversely, gasoline station sales were up 1.8 percent, due to higher fuel prices, not necessarily volumes.

Compared with a year earlier, total sales were up 3.1 percent in April.

Spending increased mildly at grocery and department stores but posted a surprising 0.2 percent decline at non-store retailers, a category that includes internet merchants like Amazon.com. Sales in that category have roared ahead over the past year, rising 9 percent from April 2018. Restaurant sales increased 0.2 percent from March and are up 5.7 percent from a year ago.

Consumer confidence is high

Consumer sentiment rocketed to its highest level in 15 years in early May as Americans grew more upbeat on the health of the economy and its path in 2019, according to data released by the University of Michigan.

The University of Michigan’s consumer sentiment index rose to 102.4, up from 97.2 in April and well ahead of economist expectations of 97.5. The optimistic consumer outlook was mostly recorded before U.S.-China trade deliberations soured earlier this month.

The Trump administration has raised tariffs to 25 percent from 10 percent on $200 billion worth of Chinese goods in response to Beijing’s attempts to renegotiate a trade agreement between the world’s two largest economies. China then responded in kind, bumping taxes on $60 billion worth of U.S. goods in retaliation.

Factory output slips

The Federal Reserve reports that factory output slipped 0.5 percent in April to the lowest level in a year. Weakness abounded last month, with decreases in durable goods (-0.9 percent) and non-durable products (-0.1 percent). Durable goods are products with a useable life of at least three years.

Compared with a year earlier, total production was flat, which was the worst year-over-year change since October 2016.

The longer-term trend in manufacturing production shows the sector is pulling back after a strong 2018. In the first three months of 2019, manufacturing output declined by about 0.4 percent a month, on average.

Though manufacturing accounts for a small share of gross domestic product, the sector is highly sensitive to shifts in global demand, making it a bellwether for the broader U.S. economy.

Inflation remains tame

The Labor Department reports the producer-price index (PPI), a measure of the prices businesses receive for their goods and services, rose a seasonally adjusted 0.2 percent in April from a month earlier. Economists had expected a 0.3 percent increase.

Compared with April 2018, the overall PPI was up 2.2 percent last month, considerably less than the recent peak of 3.4 percent reached last summer.

Prices were held in check by the so-called trade-services category, which are margins for wholesalers and retailers. Excluding food, energy and trade services, producer prices were up 0.4 percent in April from the prior month, the largest increase in more than a year.

Inflation has remained muted as the U.S. expansion approaches the 10-year mark. Tame price pressures have allowed the Federal Reserve to hold off on adjusting interest rates for the foreseeable future.

Tariffs are influencing manufacturing’s return to the U.S.

Manufacturers are moving some foreign production back to more automated factories in the United States. Whirlpool Corporation is making some small KitchenAid appliances in the U.S. again after they were made by a contractor in China for years.

Caterpillar Inc. has moved the assembly of excavators and small bulldozers from Japan to new plants in the U.S. to free up production capacity for the Asian market.

Stanley Black & Decker Inc. is planning to move production of Craftsman wrenches from China back to the U.S. making it the latest manufacturer to use automation to increase domestic output as tariffs raise the cost of imports from overseas.

Stanley is investing $90 million to open a plant in Fort Worth, Texas, by late next year that will employ about 500 people to make 10 million Craftsman wrenches and ratchets and 50 million sockets annually. Robots and fast presses will help boost output about 25 percent above the older forging machinery now used to make Craftsman wrenches in China, helping keep production costs at the new plant in line with those in China.

USPS package growth continues as mail declines and losses mount

The United States Postal Service said volume for shipping and packaging was up 5 million pieces, or 0.3 percent, compared to the same quarter last year. To deal with increasing volume in this area, USPS has extended Sunday service and added non-career employees in peak seasons.

The increase in shipping and packages has not been enough to offset declines in other mail categories. USPS reported revenue of $17.5 billion, which the agency called essentially flat, and losses of $2.1 billion in the second quarter of its 2019 fiscal year, which ends in September.

USPS CEO and Postmaster General Megan Brennan said that The Postal Regulatory Commission (PRC) needs to issue its final ruling on its review of the USPS pricing system, which began three years ago. She is asking the commission to eliminate the price cap and institute a new system that provides more flexibility.

The commission released another report this week concluding USPS failed to meet its service goals for fiscal 2018. Service is a measure of the time from when a package is received by USPS to when it is delivered at a home or business. The agency blamed weather for the missed goals.

The USPS is required by law to deliver to all United States postal addresses in all jurisdictions, regardless of geography and density. This makes them an ideal partner for others that want to deliver to those locations but do not have the infrastructure or capability to do so.

Figuring out how to turn this into a profitable model has been a years-long struggle for USPS. Brennan said getting the agency on firm financial footing will require some regulatory changes.

Freight market is confusing

Coming off the largest freight market in memory in 2018, year-over year comparisons are somewhat skewed.

DAT Solutions reports a year-over-year 16 percent decline in U.S. spot-market truckload rates in April

The Cass Freight Index shows a 3.4 percent decline in April year-over-year for the fifth straight drop in the measure for U.S. shipments.

Truck tonnage volumes were strong in April, according to the American Trucking Associations (ATA). Their advanced seasonally-adjusted (SA) For-Hire Truck Tonnage Index for April, at 121.8 (2015=100) headed up 7.4 percent on the heels of a 2 percent decline in March, which came in at 113.4.

Van freight volume rises and surprises as volume rose 2.4 percent in April 2019 compared to April 2018. Your surprise would be understandable as it doesn’t feel like a great year for freight. Additional capacity in the market has driven spot rates much lower than 2018 pricing.

Expect freight flows to be relatively stable as the economy grows. Sure, there will be headwinds as concerns about trade issues, the reduction in oil and gas production, and other policies, but economic fundamentals remain strong.

Rails see mixed bag in traffic

Association of American Railroads (AAR) reports that U.S. railroads logged mixed traffic results for the week ending May 18, with carload activity up and intermodal down compared with volumes during the same week in 2018.

Total combined U.S. rail traffic for the week was 536,358 carloads and intermodal units, down 1.8 percent. Railroads registered a combined total of 267,006 carloads, up 2.2 percent, and a combined total of 269,352 intermodal containers and trailers, down 5.5 percent versus a year ago.

For the first 20 weeks of 2019 compared with the same period last year U.S. railroads registered total combined traffic of 10,370,466 carloads and intermodal units, down 2 percent.

At Wagner Logistics

From all of us at Wagner Logistics, we wish you a great, safe Memorial Day weekend. I hope that you do take a moment to reflect on those who have sacrificed over the years and honor our lost loved ones as well.

What can Wagner Logistics do for you? If you are considering new distribution centers or a freight RFP I hope you will give Wagner an opportunity to serve you.  We have an extensive history of 73 years of service to our customers and would love the opportunity to collaborate with you.

As we say every day, Bring it!

Have a great day,

John Wagner Jr. 

About Wagner Logistics

Wagner Logistics was founded in 1946 on the principle that every customer is a big deal and that continues to pervade our mentality, producing a superior customer experience. The company began in trucking and remains dynamic offering top-notch transportation, dedicated warehousing and robust fulfillment services. We strive to produce innovative solutions, in addition to our superior onboarding process which makes transitions seamless, and have been honored 18 years in a row by Inbound Logistics as a Top 100 3PL. Our customers drive our entry into new geographic markets, technological advances and ever-changing distribution challenges. Where do you want to be? Wagner says, Bring It!