Confidence remains high
Consumer confidence ticked slightly higher in early November, although a gauge of current economic conditions trended downward. The University of Michigan said its preliminary index of November consumer sentiment was 95.7, up slightly from 95.5 at the end of October beating economists’ estimates.
Consumers voiced a slightly more positive outlook for the economy, which was offset by a slightly less favorable outlook for their own personal finances.
Consumers spent in October while factory output lags
Retail sales (purchases at stores, restaurants and online) rose a seasonally adjusted 0.3 percent in October from a month earlier, as reported by the Commerce Department. This offset the drop in September.
Growth in consumer spending contrasted with another drop-in factory production. The Federal Reserve reported that U.S. industrial production fell 0.8 percent in October, the third decline in four months.
The Fed attributed much of the decline to a strike last month at General Motors but the decrease points to a broader slowdown in manufacturing across the U.S. and internationally amid global trade tensions.
Consumer spending at gas stations and at food and beverage stores rose by 1.1 percent and 0.5 percent, respectively, as shopping for necessities helped drive the overall advance in sales last month.
Spending on big-ticket items in October was mixed with vehicle sales up 0.5 percent, while furniture and home furnishing sales dropped 0.9 percent, the biggest monthly decrease since December 2018, according to the Commerce Department.
Excluding vehicles and gasoline, categories that are often volatile, October sales were up 0.1 percent, as Americans spent less on items such as clothing and eating and drinking out.
The October retail sales level logged the second highest mark on record. Consumer spending accounts for more than two-thirds of U.S. economic output and a steady labor market, combined with muted inflation and gains in earnings, have encouraged Americans to spend.
Inflation remains tame
The Bureau of Labor Statistics reported the October U.S. Consumer Price Index (CPI). The CPI, measures changes in prices for goods and services at the retail level, increased 0. 4 percent and 1.8 percent from September and October 2018, respectively. The core CPI, excludes volatile food and energy prices, increased 0.2 percent and 2.3 percent over September and October 2018.
Similarly, the Bureau of Labor Statistics reported that the U.S. Producer Price Index (PPI), measures the change in prices received by producers and is an indicator of inflation at the wholesale level, increased 0.8 percent in October, but fell 0.1 percent compared with a year earlier. Core PPI, meanwhile, remained unchanged from September and added 1.6 percent from October 2018.
Truck purchases rebound but trucking remains under pressure
ACT Research reports that preliminary net Class 8 orders for October, were 22,100 and the highest in 11 months.
A year earlier, net orders climbed to 43,256, according to ACT.
Since January, orders have failed to top 17,000 in any month, while three months stayed below 11,000 units. Over-capacity is a current challenge in the trucking market, I’m hoping these are all replacement trucks.
After a strong trucking market in 2018, overcapacity, rising costs, and poor rates have forced many carriers into bankruptcy in 2019. According to Broughton Capital, 640 carriers called it quits in 2019 compared to 310 last year.
Insurance rates are skyrocketing many small and midsized companies are finding themselves priced out of the market. In 2016 small carriers paid about $5,000 to $7,000 per truck in premiums. That rate jumped in 2018 to about $12,000 per truck and carriers are looking at between $17,000 and $25,000 per truck next year. Thanks to large jury awards, several small carriers may not even be able to find an underwriter.
The financial results for the truckload segment in the third quarter further tells the story with profit disappointments. Operating profit margins were down to 7.2 percent, from 10 percent a year ago. This was the result of a 5.1 percent revenue decline. The average fleet grew by 2.7 percent, but drove 4.2 percent fewer miles per truck, and was paid 5.6 percent less in average revenue per mile. This was a deterioration from an already weak second quarter.
Next year is expected to be a repeat of the 2019 trucking market, carriers are expected to get rid of excess equipment and streamline processes to gain efficiency in operations.
Current market conditions
According to load board operator DAT, spot rates are trending up from an average of $1.80 per mile in October to $1.81. In the week ending November 10th load volumes have been steadily increasing since mid-October, but rates have not responded until now.
Currently the average van and reefer rate for November to date is 2¢ higher than the October average. The average flatbed rate, however, is lower than last month. Freight volumes and rates are expected to build as we get closer to the holiday season.
Railroad woes continue
U.S. freight-rail traffic got off to a slow start this month. Railroads logged 515,269 carloads and intermodal units for the week ending Nov. 9, down 5.9 percent compared with the same week in 2018, according to Association of American Railroads (AAR) data.
Carloads for the week totaled 248,905 units, down 5.1 percent, while intermodal volume totaled 266,364 containers and trailers, down 6.7 percent.
Only one of the 10 carload commodity groups that AAR tracks every week posted an increase: Grain inched up by 342 carloads to 21,855.
Commodity groups posting decreases included coal, down 9,577 carloads to 75,180; miscellaneous carloads, down 843 carloads to 10,944; and petroleum and petroleum products, down 741 carloads to 12,617.
Through the first 45 weeks of 2019 versus the same period in 2018, U.S. railroads logged combined traffic of 23,325,862 carloads and intermodal units, down 4.4 percent;
At Wagner Logistics
As I said in the beginning, I am very grateful for the people in my life and for the dedication of all the associates at Wagner Logistics. They are ordinary people doing extraordinary work on behalf of our customers.
As we head into Thanksgiving, I wish all of you a happy and healthy holiday as we prepare for the coming year.
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!