October manufacturing rebounds?
October manufacturing output showed signs of positive momentum, according to the most recent edition of the Institute for Supply Management’s (ISM) Manufacturing Report on Business. Its key metric is the Purchasing Managers Index (PMI) and this measure showed a 0.5 percent gain to 48.38 which is still contraction territory (below 50).
This is the third straight months below the 50-reading manufacturing, is recession territory, so a slight increase may signal a change in the trend. Most of the report’s key metrics, including the PMI, saw gains in October.
New orders, which are commonly referred to as the engine that drives manufacturing, headed up 1.8 percent to 48.3.
Production, at 46.2, slipped 1.1 percent, contracting for the third consecutive month after 35 consecutive months of growth.
October inventories, at 48.9, increased 2 percent, following four months of declines, and customer inventories, at 47.8, were up 2.3 percent compared to September but were low for the 37th consecutive month. Backlog of orders, at 45.5, was off 4.2 percent and contracting for the sixth month in a row. New export orders, at 50.4, were up 9.4 percent, halting three months of declines.
This corresponds to the lower volumes reported by LTL and truckload carriers.
Service industries grow
As evidence that the economy is growing, Non-Manufacturing Report on Business (NMI) showed solid momentum in October with their index coming in at 54.7 which marked a 2.1 percent gain over September. The NMI headed up for the 117th consecutive month, and the October NMI is 1.6 percent below the 12-month average of 56.3.
GDP shows growth in Q3
Surprising many, the Bureau of Economic Analysis reported that real gross domestic product (GDP) rose 1.9 percent for the third quarter of 2019. Like the second quarter, consumer expenditures and government spending supported much of the gain, while business fixed investment partially offset the overall gain. Gains in residential fixed investment and exports countered weakening personal consumption expenditures, government spending, and nonresidential fixed investment.
Surprising the analysts, job growth remains robust
Despite the GM strike, the economy added 128,000 jobs in October. The Bureau of Labor Statistics reports that in the first 10 months of 2019, the economy added an average of 167,000 new jobs compared with 225,600 new jobs added in the first 10 months of 2018.
In October, most of the gains came from restaurants (47,500), social assistance (19,600), and financial activities (16,000). Federal employment lost 17,000 jobs in October, most of which came from temporary workers that finished their work for the 2020 Census. Strike activity brought manufacturing employment levels down 36,000 jobs, the largest monthly drop since October 2009. Employment in the manufacturing of motor vehicles and parts sector fell by 41,600 jobs. Employment in for-hire trucking recovered 1,300 jobs in October following a combined drop of 8,300 jobs in the previous two months.
The 1,300 additional trucking jobs in October broke a three-month string of job losses, and the annual rate of hiring growth is at its lowest level in nearly two and a half years. That coincides with the steep retrenchment in heavy-duty truck orders, and it suggests that many operators are keeping a tighter lid on capacity as the larger economy shows restrained business investment. The broader U.S. jobs market remains solid, and the 3 percent gain in wages over the past year shows there’s still pressure for companies to pay more to hire and retain workers.
In addition to the better than expected jobs report, the unemployment rate remained near 50-year lows at 3.6 percent. Average weekly earnings adjusted for inflation climbed 1 percent in September over a year ago.
Inflation remains tame
U.S. inflation remained soft in September, as labor costs rose modestly despite the lowest unemployment rate in 50 years.
The Federal Reserve’s preferred inflation gauge, the personal-consumption expenditures price index, fell a seasonally adjusted 0.01 percent last month from August, its weakest monthly reading since January, according to the Commerce Department. Compared with September 2018, the index was up 1.33 percent, well below the Fed’s 2 percent target.
An index of so-called core prices, which excludes volatile food and energy components, rose 0.05 percent last month from August and was up 1.67 percent on the year.
Households increased spending headed into the fourth quarter, suggesting consumers have continued to help prop up U.S. economic growth.
Personal-consumption expenditures, or household spending, rose a seasonally adjusted 0.2 percent in September from August, the Commerce Department reports. Outlays rose at a similar pace in August after growing more briskly in the first half of 2019.
Consumers are helping lift the economy while manufacturing and business investment slow.
Freight volume consistent
U.S. Banks Freight Payment Index was released showing flat volume on freight shipments and spending in Q3 corresponding to Q2 volume.
The statistics were led by continuing strength in the retail sector, where sales are off pace from 2018 but remain at high levels. The report found that overall, third quarter shipments were up slightly while spending was down moderately, new-home construction stayed steady, and factory output decelerated.
Those trends align with other recent economic reports finding that U.S. manufacturing and international trade figures are faltering, but that U.S. consumer spending and e-commerce growth continue to drive the economy forward.
Durable goods fall in September
The Census Bureau reports that durable goods orders fell 1.1 percent in September after gaining a combined 4.1 percent in the previous three months. Durable goods are designed to last at least 3 years. Most of this drag was due to a steep fall of orders in the volatile transportation industry, as durable goods orders, excluding the transportation sector, fell just 0.3 percent from August.
Compared with a year earlier, durable goods orders decreased 5.4 percent, the largest drop since June 2016. Excluding autos and planes, durable goods orders remained flat year-over-year for the second straight month. Both indicators show a downward trend over the last year.
The U.S. housing market is gaining modest strength thanks to lower mortgage rates as the average national home prices grew slightly.
The S&P CoreLogic Case-Shiller National Home Price Index for August was up 3.2 percent from a year earlier and the homeownership rate ticked up to 64.8 percent in the third quarter, matching the highest level in five years and within striking distance of its long-run average of 65.2 percent
Trucking costs rising
The costs associated with trucking have increased substantially, according the American Transportation Research Institute (ATRI).
ATRI reports that their 2018 data indicates the average marginal cost per mile incurred by motor carriers rose to $1.82, marking a 7.7 percent increase from 2017.
Marginal costs were divided into two categories: vehicle and driver-based. Vehicle-based costs include fuel, truck lease or purchase payments, repair and maintenance, insurance premiums, licenses, tires and tolls. Driver-based costs include wages and benefits.
Fuel costs and driver wages and benefits accounted for a significant portion of total average marginal costs for carriers. In 2018, fuel costs made up 24 percent of total average costs, while wages and benefits accounted for 43 percent.
Current freight market
Load board operator Truckstop.com reports that spot market rates in October hit a snag, with rates in all three major truckload segments falling month-over-month.
Spot market flatbedv rates slipped 4 cents a mile this October, to $2.29 a mile. Compared to October 2018, flatbed’s per-mile average was down 27 cents.
Reefer rates were down 9 cents a mile in October, to $2.35. Though reefer rates were flat compared to October 2017, they were down 24 cents a mile from October of last year.
Lastly, dry van rates slipped 7 cents from September, to $2.10 a mile. That’s down 28 cents from last October.
Intermodal volume falls in Q3
Total intermodal volume fell 3.7 percent during the third quarter compared with the same period last year, the Intermodal Association of North America (IANA) reports.
Year over year, international shipments (2,450,493) slipped 0.8 percent in the quarter, while domestic container (1,915,342) and trailer (296,633) volume dropped 4.9 percent and 17.6 percent, respectively.
The declining volume is attributed to looser trucking capacity, continuing uncertainty about Chinese tariffs, and tough comparisons to 2018 volumes. The rest of the year is projected to be flat, but a turnaround is anticipated by Q2 of next year.
The seven highest-density trade corridors, which collectively handled 62.8 percent of volume, were down 3.1 percent in Q3 versus a year ago.
The Southeast-Southwest corridor showed the greatest strength in the quarter, with growth at 3.3 percent. That region was followed by the intra-Southeast and Trans-Canada corridors, which logged growth at 1.8 percent and 1.3 percent, respectively.
Four corridors logged decreases: Midwest-Northwest was down 2.1 percent; the Southwest-Midwest, down 4.1 percent; the South Central-Southwest, down 6.6 percent; and the Northeast-Midwest, down 7.3 percent.
Intermodal marketing companies' total volume tumbled 7.6 percent year over year in Q3. Both intermodal and highway loads were down for only the third time since the Great Recession, IANA officials said.
At Wagner Logistics
Wagner is preparing to finish strong this year as we look at the remaining weeks of 2019. Our freight volume in transportation is up as is our warehouse occupancy.
The Solutions team is deeply engaged in process analysis and deploying robotics in the coming year. The IT team continues to integrate new systems to provide even more robust tools for our associates and customers.
What may 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!