Home sales and construction rises
The Commerce Department reports that new homes were started an annual pace of nearly 1.5 million in July, highest since February and well above what economists were expecting. Housing starts have now risen three straight months after plunging in March and April as the virus outbreak paralyzed the American economy. Last month's pace of construction was 23.4 percent above July 2019's.
The big gains came from the construction of apartments and condominiums, which soared 56.7 percent. But single-family home construction ticked up, too, by 8.2 percent.
Applications for building permits, a good indication of future activity, jumped 18.8 percent from June to an annual rate of 1.5 million, highest since January and up 9.4 percent from July 2019.
The housing market has been a true bright spot for the economy in recent months, as record low mortgage rates have added fuel to homebuying.
Despite the pandemic, sales volume of existing homes is amazingly just 4.7 percent below last year’s total to this point, and if recent pending sales figures are any indication, the good times are likely to keep on rolling in the near future.
However, despite this remarkable gain, the longer-term outlook for sales is a little cloudier. A severe shortage of available homes, especially at lower price points, is likely to force these recently strong improvements to decelerate in the coming months, particularly if heightened levels of economic uncertainty start to weigh on homebuyers’ enthusiasm.
Retail soars (for now)
Total retail sales rose 1.2 percent in July, below the 2 percent consensus forecast. However, June’s reading was revised up from 7.5 percent to 8.4 percent. Despite the lower than expected increase, retail sales were up 2.6 percent compared with a year earlier. Total sales are now above their pre-pandemic high.
After accounting for seasonal factors, sales were 1.7 percent higher compared to February, the month before the pandemic shut down much of the economy.
Underlying data show varying results. On the good side, electronics and appliance store sales surged 22.9 percent from June, although sales were still off 2.8 percent from a year earlier. Clothing store sales were up 5.7 percent from June, while restaurant sales increased 5 percent. Non-store retailers, primarily e-commerce, saw sales rise 0.7 percent in July, but surged nearly 25 percent from a year earlier. Conversely, general merchandise stores saw a slight decline from June (-0.2%), while auto sales contracted 1.2 percent.
While certainly not a bad report, it is clear that retail sales have lost a little momentum. More concerning is if there is not further stimulus out of Congress soon, you can expect a further erosion in the pace of retail sales and thus to the recovery.
In the world’s largest economy, consumers are paramount. Their spending reflects more than two-thirds of economic demand. Retail spending, which excludes costs like utilities and rent, represents a big chunk of all consumer spending.
Factory activity rises
The Federal Reserve reported that factory output rose a solid 3.4 percent in July following a 7.5 percent surge in June. Over the last three months, output has increased 15.5 percent. Despite that robust trend, output remains 8.1 percent below its recent pace in December 2019 and 7.5 percent lower than July 2019. July’s gain was helped by a 28.3 percent surge in auto production.
In June (this data is lagged one month), inventories throughout the supply chain, inventory to sales ratio (I/S), plunged to levels even below a year earlier. The retail only I/S ratio fell to the lowest level on record, which is why truck freight volumes have been good.
Walmart surges
The world’s largest retailer is providing a strong demonstration of the benefits of scale. Walmart’s U.S. sales soared in the last quarter on nearly double-digit growth in e-commerce revenues as the retailer turned its sprawling store network sharply toward shifting consumer shopping patterns. The online growth was boosted by people ordering groceries online to pick up in store parking lots.
Along with Amazon, Walmart, Home Depot and other large retailers have been coronavirus winners. They have significant online businesses or have largely stayed open and sell goods that align with shifting buying habits.
The only thing that appeared to hold back Walmart’s growth was stock outs as consumers hoarded a variety of goods. U.S. inventory levels were 4.6 percent below year ago levels last quarter. Walmart says inventory strain has stabilized somewhat but some products are still in short supply.
Durable goods surprise to the upside
Orders for long-lasting factory goods rose for a third straight month in July as manufacturers boosted output and the economy continued its climb back from disruptions related to the pandemic.
New orders for durable goods (products designed to last at least three years) increased 11.2 percent in July from the previous month, the Commerce Department reported Wednesday.
Orders for military aircraft and motor vehicles led the gains, pushing new orders for transportation equipment up 35.6 percent from a month earlier. Excluding the often-volatile transportation category, orders rose a more moderate 2.4 percent.
A closely watched gauge of business investment, new orders for nondefense capital goods excluding aircraft, increased 1.9% from the prior month and was barely shy of February levels.
FedEx follows UPS lead on seasonal charges
FedEx is adding extra fees on shipments during the holidays, joining United Parcel Service Inc. and the U.S. Postal Service in implementing surcharges to offset costs and control shipping volumes during what is expected to be a busy online shopping season.
FedEx says the surcharges are designed to primarily hit larger customers. They include fees as much as $2 on all packages shipped in the week after Thanksgiving for FedEx’s lower-priced SmartPost service, which is overwhelmingly used by large retailers. FedEx will also charge as much as $5 a package on its premium Express service for large shippers whose volume far exceeds normal levels.
The company says the fees, which are both higher and broader than previous years, are needed to help maintain service during its busiest time of the year. The changes were noted on FedEx’s website.
Both UPS and the Postal Service have disclosed their own price increases for the peak shipping season, which is forecast to be challenging, with shoppers expected to avoid crowded stores over fears of the coronavirus. That will push more of the holiday shopping online. The carriers are aiming to prevent their networks from being overwhelmed, while also capitalizing on newfound pricing power in the market.
Driver pool shrinks
An overwhelming number of drivers with drug and alcohol violations have failed to complete the federal return-to-duty process, a trend that could have trucking capacity implications down the road.
Statistics released this week by the Federal Motor Carrier Safety Administration (FMCSA) reveal that of the 28,445 drivers registering at least one drug or alcohol violation in the FMCSA’s Drug & Alcohol Clearinghouse, 26,443, or 93%, are in “prohibited status” because they have not completed the steps required by the FMCSA that allow them to get back behind the wheel. In fact, as of August 1, 80% of those in prohibited status have not yet even started the return-to-duty (RTD) process.
While the prohibited status rate has come down slightly over the last three months, from 95 percent in May and 94 percent in June, the number of drivers not returning to the workforce due to drug or alcohol violations is concerning,
Current freight market
Before we head into the post-hurricane craziness, let’s first look at July volume. The American Trucking Associations (ATA) reports that truck tonnage declined a seasonally adjusted 8.3 percent when compared with year-ago levels, and on a monthly basis was down 5.1 percent from June.
The 8.3 percent drop is the fourth consecutive year-over-year monthly decline.
In July, the ATA For-Hire Truck Tonnage Index equaled 109.6, compared with June’s 115.5. (In calculating the index, 100 equals the year 2015.)
ATA Chief Economist Bob Costello explains that after a very strong June, for-hire contract freight tonnage, which dominates ATA’s index, slipped in July due to lack of fleet capacity. The overflow volume likely was turned over to the spot market.
Another factor in the decline in tonnage is that the industry is contracting slightly, and there is less available excess capacity. ATA data shows that for-hire truckload fleets are operating 3 percent fewer trucks this summer than a year earlier making it difficult to take on a significant amount of additional freight.
DAT Solutions reports that in the week ending August 23rd, spot truckload freight activity jumped as shippers and logistics companies began to reposition freight ahead of two major storms along the Gulf Coast, Laura and Marco.
The number of loads posted on the DAT One load board network increased 9 percent and truck posts ticked up 2 percent compared to the previous week, pushing national average spot rates to their highest levels since July 2018.
National Average Spot Truckload Rates, August
- Van: $2.20 per mile, 17 cents above the July average
- Flatbed: $2.28 per mile, up 8 cents
- Refrigerated: $2.43 per mile, up 13 cents
These rates are rolling averages for the month through August 23 and include a fuel surcharge. Spot rates are tracking well above seasonal norms.
Rail intermodal increases
U.S. railroads reported an increase in intermodal volume, a small bright spot in the nation's still-declining freight-rail traffic compared with year-ago figures, according to Association of American Railroads (AAR) data.
The railroads posted 278,210 containers and trailers for the week ending Aug. 15, a 1.9 percent increase compared with the same week in 2019.
Carloads for the week totaled 222,353 units, down 15.9 percent. Combined, carload and intermodal volume fell 6.9 percent to 500,563 units.
In the week ending August 22nd, car loadings were down just 3.0 percent year-over-year for a slight improvement. Coal and Grain was only down 0.8% percent year-over-year for the best week with the strongest volumes seen since the initial lockdowns.
The strong truckload market appears to be forcing shippers over to intermodal.
At Wagner Logistics
Wagner is not immune to the pandemic; I want to give a shout out to our operations and human resources teams as we continue to manage our way through Covid. Testing and contact tracing must be managed in concert with staffing plans. I appreciate all the efforts to receive, pick, and ship on time while adding the component of associate health to the mix.
Another shout out goes to the transportation team as we manage our way through surging trucking pricing. Our fair-minded approach to working with carriers and clients is paying off in performance.
What may Wagner Logistics do for 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 20 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!