Job growth continued in December
ADP and the Labor Department both reported positive job growth last month. ADP counted 202,000 new jobs in the non-farm sector. Most of the growth was at medium- and small-sized businesses, according to the ADP National Employment Report.
The service-providing sector drove most of the overall increase, adding 173,000 jobs, significantly higher than the 29,000 jobs added by the goods-producing sector, where all gains were in the construction industry.
Conversely, the Labor Department reported that 145,000 jobs were added in December with most of the gain coming from the retail and hospitality sectors.
The unemployment rate held at 3.5 percent for the second straight month, prolonging a half-century low.
The U.S. economy added 2.1 million jobs last year, down from gains of nearly 2.7 million in 2018. Hiring has slowed because the number of unemployed people seeking work has fallen by 540,000 people over the past year to 5.75 million. There is a potential limit on job gains with fewer unemployed people hunting for jobs,
December retail sales rise
Consumers spent at a steady clip at the end of the holiday season with December retail sales increasing a seasonally adjusted 0.3 percent from a month earlier to $529.6 billion, per the Commerce Department. Excluding the volatile categories of autos and gas, retail sales rose 0.5 percent in December, the strongest pace of growth in five months.
Solid gains in nearly every category offset sluggish sales at bricks-and-mortar stores and a drop in motor-vehicle sales. The final month of the holiday season is key for retail businesses, especially for department stores, clothing outlets and online sellers.
Due to a late Thanksgiving, there were six fewer days in the 2019 holiday-shopping season compared with 2018. Cyber Monday fell in December in 2019.
Sales at electronics and appliance stores increased 0.6 percent from a month earlier. Clothing-store sales rose 1.6 percent from the prior month, and sporting-goods sales increased 0.9 percent in December.
December department-store sales slipped 0.8 percent from November and declined 5.5 percent from a year earlier. Meantime sales at non-store retailers, a category that includes internet merchants such as Amazon.com Inc., were up 0.2 percent on the month and rose 19.2 percent compared with a year earlier.
December marked the third consecutive month in which retail sales increased at a 0.3 percent pace, suggesting consumers headed into 2020 on a solid footing.
The LTL market
Heading into 2020, there are a few fundamental trends that one should keep an eye on as we go through the year. First on the list is the U.S. industrial economy. As long as the U.S. industrial activity continues to show signs of contraction, I would expect tonnage to remain challenged for LTL carriers. Looking forward, to the extent that we see a recovery in industrial fundamentals (oil & gas rig count, non-defense capital goods new orders, 50+ PMI, etc.), the LTL carriers could see a positive inflection in tonnage in in the first half of the year.
The direction of U.S. industrial activity will play a crucial role in the tonnage story for 2020. The upcoming Presidential Election could potentially serve as a headwind to industry tonnage trends, as businesses may opt to hold off on their capital investments until a clearer picture of who will lead the next presidential administration emerges.
On the more positive side of the ledger, the resolution to do phase one of the U.S. – China trade deal will be a trigger for demand. LTL carriers continue to successfully pass through rates despite nearly a year of tonnage declines though yield discipline.
I’ve heard shippers expect a 1.7 percent increase in LTL rates in 2020. I’m sure that LTL carriers will try for more.
Truckload market update
I expect a supply-driven recovery in the truckload market by the second half of the year. It’s important to remember that the truckload market is 7-8 times bigger than the LTL market by revenue. There are lots of players with no single carrier having market dominance.
Carrier bankruptcies accelerated in 2019 but it is estimated that only took out one percent of the total capacity. In the meantime, shippers are looking for modest rate reductions at a time when truckload carrier costs are rising.
Shippers appear to largely recognize the potential for a tightening market in 2020 and inflationary cost pressures facing carriers, helping to somewhat support rates. Contract rates have continued to outpace the spot market for the 16th straight month with contract rates down 3.8 percent year-over-year while spot rates are down 13.3 percent during the same period.
In the week ending January 5th, the national average rate hit $1.98 for dry vans according to DAT Solutions. That's 4¢ per mile above the December average and higher than any monthly rate since 2018. Reefer rates rose as well, but flatbeds lost 4¢ per mile. Load counts rose in high-volume lanes for vans, and declined for reefers and flatbeds, compared to the previous week. Volumes were much lower than in the run-up to Christmas, however.
DAT also reports that in the week ending January 13th, van load volumes recovered to pre-holiday levels at $1.94 per mile in the first full week of the new year, while load counts grew modestly for reefers and flatbeds. Van and reefer rates dropped a few pennies compared to the previous week, but they are still the highest in 13 months.
Railroads still seeing lower volumes
U.S. freight railroad traffic fell 5 percent to 26,704,974 carloads and intermodal units last year compared with 2018 levels, the Association of American Railroads (AAR) reports.
Total carloads declined 4.9 percent to 12,972,404 units, while intermodal volume fell 5.1 percent to 13,732,570 containers and trailers compared with a year ago.
Combined, North American freight-rail volume in 2019 tumbled 4 percent to 36,486,394 carloads and intermodal units versus the previous year.
The year began the same as it ended for U.S. railroads as rail traffic declined 5.1 percent to 414,014 carloads and intermodal units for the week ending Jan. 4th, compared with the same period last year.
Total carloads for the week fell 2.8 percent to 215,564 units, while intermodal volume dropped 7.4 percent to 198,450 containers and trailers.
At Wagner Logistics
Despite playoff fever (go Chiefs!) we are gearing up for our annual meeting next week. It is always great to get together with all our managers and staff from around the country and share current plans, initiatives, and goals for Wagner Logistics in 2020.
Plus, it’s just nice to spend time with good people.
We are expecting continued growth and positive changes in the coming year. If you are reading this and are a customer, we thank you for your business! If you are not a customer, I always ask, “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 74 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!