The economy grew at a record pace in the third quarter, increasing 7.4 percent over the prior quarter and at a 33.1 percent annual rate, recovering about two-thirds of the ground it lost earlier in the coronavirus pandemic.
Gross domestic product is the value of all goods and services produced across the economy and it jumped following a record decline from earlier in the pandemic when the virus and related shutdowns disrupted business activity across the country. That puts the economy about 3.5 percent smaller than at the end of last year, adjusted for inflation and seasonal fluctuations.
The third-quarter increase followed a 9 percent quarter-to-quarter decline in the second quarter, or a 31.4 percent annualized drop.
The catch: The economy is still smaller than it was before the pandemic. Output is down 3.5 percent since the end of 2019. And economists don’t think the third quarter’s torrid pace of growth will continue. That means it could take some time for the economy to recoup all of its pandemic-related losses.
Consumers are spending
The Commerce Department said personal-consumption expenditures (a measure of household spending on goods and services) rose 1.4 percent last month. Consumers have increased spending since the summer, although the pace of gains slowed into early fall.
Personal income, which is a measure of what households receive from wages and salaries, government aid and investments, was up last 0.9 percent month, after a sharp decline in August, rising on higher pay and remaining pandemic-related aid.
Consumers last month doled out more on autos, clothing and footwear, continuing a trend of robust outlays on goods due to pent-up demand from pandemic-related economic disruptions.
Goods spending rose 2 percent, on a seasonally adjusted monthly basis. Spending on services was up 1.1 percent over the month, with higher outlays on health care, fitness and entertainment. Services businesses were hit particularly hard by the pandemic, and service-sector spending remains below pre-pandemic levels.
Durable goods are in demand
The Commerce Department reports that new orders for durable goods, products designed to last at least three years, rose 1.9 percent in September compared with August.
A closely watched proxy for business investment, new orders for nondefense capital goods excluding aircraft, increased by 1 percent last month. The measure had recovered all of its pandemic-related losses by August, suggesting that businesses have ramped up capacity in anticipation of growing demand.
A closely watched proxy for business investment is new orders for non-defense capital goods excluding aircraft. This measure recouped all its pandemic-related losses by August.
Orders for transportation equipment helped drive overall gains in September, while military orders were a big drag. Excluding transportation, orders were up 0.8 percent. Excluding defense, they were 3.4 percent higher than the previous month.
Demand has been especially high for autos, electronics and communications equipment, a category that includes telephones, suggesting U.S. consumer demand is also helping lift factories. Households have responded to the pandemic by cutting spending on services such as travel and in-person entertainment and increasing purchases of goods such as cars and computers.
Home sales take a breather
The National Association of Realtors (NAR) say the pending sales of existing homes fell 2.2 percent in September which is the first monthly contraction of that figure in four months.
The report is the latest indicator that showed the housing market cooled in September after being strong throughout the summer. Sales of existing homes fell in September as well, NAR reported earlier this month, and the Commerce Department said sales of newly constructed homes fell in September, too.
Despite the modest decline, contract signings are still up 20.5 percent from a year earlier, the industry trade group said. Three out of the four regions tracked by NAR saw monthly declines. Only the Northeast reported a month-over-month gain.
The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 5.7 percent in the year that ended in August, up from a 4.8 percent annual rate the prior month.
The Institute for Supply Management said its purchasing managers index for manufacturing rose to the highest level in more than two years in October. U.S. factories reported a surge in new orders as customer inventories shrank. Manufacturers also reported increased hiring for the first time in 14 months.
The October Manufacturing PMI® registered 59.3 percent, up 3.9 percentage points from the September reading of 55.4 percent and the highest since September 2018 (59.3 percent). This figure indicates expansion in the overall economy for the sixth month in a row after a contraction in April, which ended a period of 131 consecutive months of growth.
The New Orders Index registered 67.9 percent, an increase of 7.7 percentage points from the September reading of 60.2 percent. The Production Index registered 63 percent; an increase of 2 percentage points compared to the September reading of 61 percent. The Backlog of Orders Index registered 55.7 percent, 0.5 percentage point higher compared to the September reading of 55.2 percent.
Logistics Manager’s Index climbs
The recently released October 2020 Logistics Manager's Index (LMI) suggests that the logistics industry continues to grow at a rapid pace. The LMI is at 71.6, up over 20 points from six months ago when it reached an all-time low of 51.3 in April 2020.
The score of 71.6 is the highest score the overall index has reached since June of 2018. October’s growth is being driven by logistics metrics across the board. Firms are reporting increasing levels of inventory, contracting capacity, and increasing levels of both utilization and price.
Ecommerce is predicted to be up by 50 percent year-over-year in Q4, a sharp jump from the 13 percent increase that was predicted pre-pandemic. Ecommerce tends to be more logistics-intensive, requiring firms to carry more inventory and utilize more trucks and warehouses. Because e-commerce is growing at quadruple the predicted rate, it has been difficult for firms to procure the infrastructure necessary to fulfill consumer demand. This reflected in the plummeting rates of available Warehousing Capacity, which this month read in at their lowest-ever level in the history of the LMI®. Transportation Capacity is dropping even more rapidly and this month we observe subsequent increases in the cost of each.
Amazon continues growth
Amazon, which accounts for more than a third of online sales in the U.S., has recorded record profits during the pandemic. The company posted a record $88.91 billion in sales during its second quarter, and profit doubled to $5.24 billion from the same period last year.
Amazon plans to hire 100,000 seasonal workers in the U.S. and Canada heading into the Thanksgiving and Christmas holidays ahead of an expected surge in online orders.
Amazon says the seasonal workers would pack and deliver items, among other roles, during the holiday shopping rush. The additions build on the company’s hiring spree this year to meet soaring demand during the coronavirus pandemic, even as companies across a range of industries have cut their workforces and filed for bankruptcy.
They have promoted more than 35,000 operations employees, including fulfillment-center workers, across North America this year. Amazon said it pays its workers at least $15 an hour.
The race to hire is on
In addition to Amazon’s hiring binge, warehouse operators across the U.S. are rushing to hire workers amid a boom in online sales, a bright spot for a labor market that faces mounting challenges.
With purchases set to hit a holiday record, companies that order, pack and ship goods are moving up seasonal hiring earlier in the year and converting gig positions to full-time roles at a faster clip than before, according to employers and staffing agencies. Many are also raising wages and lowering the bar on education and experience requirements to get people in the door.
While overall employment across the U.S. is still nearly 11 million below pre-virus levels, the warehousing and storage industry is one of the few sectors where employment is actually higher than before the pandemic: 1.25 million people were on payrolls in September, about 46,000 more than in February.
UPS Inc. is adding more than 100,000 seasonal workers, a slight increase from last year, after already hiring tens of thousands earlier this year. FedEx plans to hire 75,000, 27 percent higher than last year.
Retailers like Walmart Inc. and Target Corp., as well as e-commerce companies such as Instacart Inc., have also seen immense growth online and hired hundreds of thousands of workers.
Insurance woes for truckers
One key factor contributing to trucking’s increasingly challenging insurance market is the proliferation of “nuclear” verdicts which are defined as judgments of $10 million or higher awarded in cases involving truck crashes.
In practice, plaintiffs’ attorneys are trying to reach jurors who instinctively want to protect family and community from danger and punish through their verdict. The strategy does not necessarily focus on fault or facts. Its calling card is fear and revulsion, and convincing juries to hand down verdicts intended to punish the defendant trucking firm and send a message to the industry.
As part of this trend, attorneys are conducting deep research into trucking company history, operations, practices, procedures and documentation, seeking evidence to support claims of institutional negligence or bad practices that could allegedly contribute to poor safety and cause accidents.
Trucking has become a target for attorneys, hit a truck & get a large check. The resulting insurance premiums put many smaller carriers out of business.
Current freight market
According to DAT Solutions, the average per-mile price, including fuel, to book truckload transport on the U.S. spot market in October hit a record high at $2.41.
In the week ending November 1st this record rate topped the previous record that was set in September, as disrupted supply chains see more and more freight moved on the spot market. Load-to-truck ratios rose at month's end after falling in recent weeks.
After hitting $2.41 per mile in October, the national average rate per mile for dry van freight so far in November is trending at $2.39 per mile.
Most publicly held truckload companies are posting solid numbers as a result of the pricing strength they have. LTL companies likewise and are experiencing strong freight and good operating ratios.
Railroads see intermodal growth
Third-quarter 2020 intermodal volumes rose 1.2 percent to 4,719,462 units compared with the same period a year ago, according to the Intermodal Association of North America's (IANA) Intermodal Quarterly report.
Year over year, international intermodal volume fell 6.5 percent to 2,290,299 containers, while domestic volume rose 9.8 percent to 2,103,361 containers. Trailers climbed 9.8 percent to 325,802 units during the quarter.
The truckload constraints in capacity are clearly driving shippers to use intermodal to keep the freight flowing.
In the week ending October 24th, this trend is confirmed according to Association of American Railroads (AAR) data.
U.S. railroads logged 522,653 carloads and intermodal units; a 1.9 percent percent increase compared with the same week in 2019. Total carloads for the week were 227,543 units, down 6.5 percent, while intermodal volume was 295,110 containers and trailers, up 9.4 percent.
At Wagner Logistics
Wagner continues to operate well through the pandemic. While focused on onboarding new clients, the team continues to serve our existing customers while planning for the holidays and the surge of business that comes with it.
Our transportation group is handling an increase in freight as well balancing the need for customers to control costs while working with carriers to get them the dollars they need.
As we reach the halfway point in November I couldn’t be more proud of this organization.
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!