Americans spent in April

Consumer spending, the biggest source of economic demand in the U.S., rose 0.5 percent in April after surging in March, according to the Commerce Department.

The report offered mostly positive signs about the direction of the economy’s path out of the pandemic-induced downturn. After months of buying goods from the safety of their homes, Americans are increasingly comfortable enough to go out in public and buy things in person, a shift that economists say is crucial to getting the economy running at full speed again. Spending on services, which account for the bulk of all consumer purchases, rose 1.1 percent last month; spending on goods fell 0.6 percent.

Inflation Is Highest in 13 Years as Prices Surge 5 percent

The U.S. economy’s rebound from the pandemic is driving the biggest surge in inflation in nearly 13 years, with consumer prices rising in May by 5 percent from a year ago.

The Labor Department said last month’s increase in the consumer-price index was the largest since August 2008, when the reading rose 5.4 percent. The core-price index, which excludes the often-volatile categories of food and energy, jumped 3.8 percent in May from the year before—the largest increase for that reading since June 1992.

A key barometer of inflation rose again in April and hit a 13-year high, reflecting a broad surge in consumer prices as the U.S. fully reopens for business and massive government stimulus sloshes through the economy.

Consumers are seeing higher prices for many of their purchases, particularly big-ticket items such as vehicles. Prices for used cars and trucks leapt 7.3 percent from the previous month, driving one-third of the rise in the overall index. The indexes for furniture, airline fares and apparel also rose sharply in May.

Wanted - Workers

The WSJ reports that on one hand, job openings soared to record highs in March as the country reopened and businesses looked to rehire. Yet a hugely disappointing April jobs report suggested that, while demand for labor was strong, not enough Americans were looking for work. The phenomenon has since been referred to as a labor shortage, joining the various other supply bottlenecks hindering the economic recovery.

The labor shortage will reverse as the economy heals further, Brainard said while speaking at The Economic Club of New York. The Fed has repeatedly said it expects supply chain issues to be solved as the country returns to a new sense of normal and production capacity bounces back.

Brainard made a similar projection regarding the labor shortage. For one, only about half of Americans are fully vaccinated against COVID-19, meaning millions probably still fear catching the virus. Childcare expenses are also likely weighing on the return to work as parents elect to stay home. And the continued payment of expanded unemployment insurance gives unemployed Americans more time to stay out of the workforce.

Available jobs in the U.S. climbed further above pre-pandemic levels last month following a record surge earlier in the spring, a sign of strong demand for workers—with leisure and hospitality sectors showing the most growth in openings.

Openings continued to grow in May, according to job search site That followed an increase of nearly 1 million unfilled positions in April, to 9.3 million, the highest level on records back to 2000, according to a Labor Department report released Tuesday.

Open positions nearly matched the 9.8 million Americans who were unemployed but searching for work during the month. The rate at which workers quit their jobs, a sign of confidence in the labor market, also rose to a record high in April, and the rate at which workers were laid off fell to a record low, the Labor Department said. The most quits occurred at retail jobs.

Manufacturing strong

Manufacturing activity, for the month of May, remained on a strong growth path, according to data issued by the Institute for Supply Management (ISM).

In its monthly Manufacturing Report on Business, ISM said that the report’s key metric, the PMI, at 61.2 (a reading of 50 or higher indicates growth), saw a 0.5 percent increase, from April to May. This marked the twelfth consecutive month of PMI growth, coupled with May also representing the twelfth consecutive month of growth for the overall economy.  The May PMI is 2.8 percent above the 12-month average of 61.2, with March’s 64.7 being the high and June 2020’s 52.2 being the low for that period. 

Infrastructure improvements needed

Bottlenecks cost the U.S. economy more than $42 billion in 2019, according to a review of Federal Highway Administration (FHWA) data, and freight shipments suffered almost 660 million hours of delay on the nation's roadways.

Highway freight shipments collectively experienced over 27 million days of delay in 2019 – the equivalent of nearly 75,000 years – with over one-third of the lost time occurring on the Interstates. Unsurprisingly, the study found New York, Chicago, Los Angeles, Austin, Houston, Nashville, San Francisco, Seattle, Philadelphia, and Atlanta are among cities hardest hit by freight bottlenecks.

LMI reports continued reduced capacity

Transportation capacity diminished further in May, according to a supply chain survey. The capacity subindex of the Logistics Managers’ Index fell 50 basis points from April to 32.7 percent, “indicating continued downward pressure,” the report read.

The LMI is a diffusion index wherein a reading above 50 percent indicates expansion and a reading below 50 percent indicates contraction.

The overall index, which is designed to capture the rate of change in areas like transportation, inventory and warehousing, declined 3.2 percentage points to 71.3 percent. The latest reading remains firmly in expansion territory and only 4.4 percentage points off the all-time high.

Heightened consumer demand and a lack of capacity remain the catalysts for higher transportation rates. A strong consumer wallet and the need for continual inventory replenishment has kept freight flowing while headwinds finding equipment and the drivers to move it constrains capacity.

The one-year forward outlook for transportation pricing increased 1 percentage point to 87.2 percent.

Surging demand and the proliferation of e-commerce are keeping warehouse capacity tight. The warehousing capacity subindex climbed 6.5 percentage points to 48.3 percent, but still in contraction territory even as new space comes online. Warehouse utilization (68.7 percent) and prices (83.1 percent) remain elevated.

The inventory component of the index continued to show expansion at 58.7 percent but the rate of growth in inventory during May was 8 percentage points lower than in April. Near-record inventory costs (83.8 percent) and retailers experiencing quicker inventory turns were cited as some of the drivers of the decline in the growth rate of inventories during the month.

According to the latest Census Bureau data, the retailers’ inventories-to-sales ratio fell to 1.1x in March from 1.23x in February, the lowest level for inventories relative to sales in the dataset’s history.

The decline in growth of the LMI’s inventory component also comes as inventory values are getting a boost from inflation. The personal consumption expenditures (PCE) index increased 3.6 percent year-over-year in April, according to Friday data from the Bureau of Economic Analysis. The subindex, excluding food and energy prices, reached its highest level since 1992, up 3.1 percent year-over-year.

Read it here: May 2021 Logistics Manager’s Index Report®

Truckers raising driver pay (again)

Transport Topics reports that trucking companies are continuing to increase driver pay as labor capacity remains a challenge amid strong demand.

Averitt Express on May 19 announced a pay increase for local drivers, shuttle drivers, diesel mechanics and dock associates, while Maverick Transportation announced May 11 higher pay for flatbed, glass, marine and dedicated drivers. WEL Cos. announced April 30 its drivers would see pay increase by 4 cents per mile.

Maverick said its flatbed and glass over-the-road drivers would see an increase of 3 to 4 cents per mile. For student drivers, that takes starting pay up to 55 to 60 cents per mile, or an average of around $80,000 per year, the company said. Experienced drivers will earn 59 to 66 cents per mile. Those pay increases went into effect May 16.

All three companies are following earlier increases with these latest pay bumps. The increase at WEL follows a 3 cent-per-mile increase from earlier this year, while Averitt on March 2 announced pay increases for regional truckload and flatbed drivers. Maverick on Jan. 3 announced a pay increase for flatbed, glass and dedicated drivers.

The exact number of drivers the industry lost last year is not clear yet, but when it comes to nonsupervisory and production occupations — including for-hire and nonlocal trucking — the industry lost 32,000 jobs last year. Most, but not all, of those jobs were drivers. So far this year the sector has only added 200 jobs.

Recruiting is tough as a lot of drivers have moved on to other vocations and the pipeline for new drivers has not been restored.

Beyond pay and benefits, quality of life is an important consideration for recruiting drivers. With the limited supply of new drivers, companies are competing in the same constrained pool.

FedEx announces surcharges

FedEx has announced that effective June 21 they’re going to implement some new “peak” season surcharges. The surcharges include:

  • Residential delivery surcharges on domestic air and ground deliveries will double from 30 cents per package to 60 cents
  • Ground Economy surcharges will rise from 75 cents per parcel to $1
  • Additional handling surcharges on domestic air and ground deliveries, as well as international ground deliveries, will go from $3 per parcel to $3.50

This mid-year pricing change tells us:

First, the system is flush with freight. Virtually every carrier is operating in excess of 100 percent capacity. That’s why we’re seeing service issues, and a variety of actions that carriers are taking to get their network back in balance.

Second, you need the carriers more than the carriers need you—if you take nothing else away from this message, at least remember this!

Current truck market

Tighter capacity and higher spot rates are the norm during produce season where fruit, vegetables, and nut suck up thousands of truckload units reducing already tight capacity.

In the Southeast Region, DAT dry van spot rates have been steadily climbing for the last four weeks to reach an average of $2.72/mile to all destinations this week. Southern Georgia, the heart of peanut country, is seeing even higher rates.

Using Douglas, GA as the center of peanut production, spot rates to Orlando are currently averaging $4.17/mile. This is up $1.05/mile since February after averaging $3.30/mile for the second half of last year.

In the week ending June 6th, overall truckload demand increasing slowly, but rising far more rapidly in the retail freight sector, the gap between supply and demand remains wide. The national average van rate for June was up to $2.72/mile, while reefer rate increased to $3.13/mile. Flatbed spot rates are plateauing around the $3.14/mile mark, as spot market volumes slid for the fifth week in a row.

At Wagner Logistics

Wagner hit the month of June running as we continue to work on improvements in our facilities. The number of IT projects underway is impressive and my thanks go out to the entire IT and Solutions teams in solving challenges and evolving with the business.

The robotics initiative continues to show great promise.

Wagner’s transportation team continues to successfully move our customers freight in this difficult market. Matching the right carrier with the right shipment is always the goal.

As Wagner continues to work its many projects, we would love to work with you. If you are issuing a transportation RFP or have a distribution/fulfillment project, let’s schedule a call.

We are celebrating our 75th year of history of service to our customers and would really appreciate 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!