Supply Chain Blog
While the fear of coronavirus is front of mind, the traditionally slow first quarter rolls on as we enter March. Concerns about imported inventory abound and business activity slows awaiting the virus’s containment.
Data firm IHS Markit said its U.S. composite output index (an aggregate measure of activity in the services and manufacturing sectors) fell to 49.6 in February, down from 53.3 in January, and the lowest level since October 2013. A reading below 50 signifies contraction.
The drop in the U.S. composite index was driven primarily by a decline in services-sector output, which contracted this month, and a drop in new orders for goods and services across all U.S. firms for the first time since 2009.
Consumers in the U.S. remained upbeat, however. A University of Michigan survey said the index of consumer sentiment increased to 100.9 this month from 99.8 at the end of January, close to the post-recession peak of 101.4 set in March 2018. The coronavirus was mentioned by just 7 percent of respondents when asked about their economic expectations in early February.
Still, factors driving U.S. consumer spending remain positive. Unemployment was a low 3.6 percent in January, and average hourly earnings posted a 3.1 percent year-over-year gain, meaning households have money to spend.
How is this going to play out? So far, the U.S. has been spared widespread contagion, so the impact is largely in our trade and global supply chains.
Let’s take a look at some economic and freight numbers.
These are the dog days of winter and the political circus continues while the coronavirus outbreak causes concerns worldwide. It is still too early to tell how this will affect business. Retailers seem to have sufficient inventory levels in the USA, they will be preparing contingency plans just in case supply chains to China deteriorate further.
Strong employment figures, low inflation, and somewhat positive manufacturing news are present as we enter the midway point of the first quarter.
In this traditional slow time for freight, spot pricing for truckload is likewise trending down.
Let’s look at some numbers.
It is appropriate that the Romans shifted the beginning of their calendar to this month, January, a time for us to look at the past and the future. The Roman god Janus had two faces, one looking forward and one looking back.
2019 was a year of turmoil in politics, trade, manufacturing, and the resultant was slower freight markets. An impeachment trial is looming next week and an election in November, I don’t expect the political turmoil to calm down anytime soon.
Despite this turmoil, we have the new U.S.-Mexico-Canada Agreement replacing NAFTA. The pact updates trading rules in the continent to address 21st-century technology, safeguard environmental and labor standards in Mexico and toughen requirements for auto-industry trade among the three countries.
In addition, we have a signed Phase One trade agreement with China which has boosted optimism that both sides have called a truce (for now) and a way to move forward. The USMCA and US-China agreement will significantly increase the export of U.S manufactured goods, creating a strong, growth environment for the trucking industry.
While there has been a lot of talk about infrastructure, nothing has happened since Trump met with congressional Democrats last spring. We can remember that those conversations did not go well. A long-term plan to fund upgrades to the nation’s transportation system remains unfulfilled.
On a more positive note, the House of Representatives is expected to debate transportation policy in a few months. The Transportation and Infrastructure panel will take up a multiyear highway measure that updates the 2015 FAST Act, which expires next fall. This legislation will propose policies important to freight corridors and transit systems, as well as autonomous vehicles and climate-resilient infrastructure. The Senate committee has previously submitted its version.
Manufacturing has bottomed out and should slowly improve throughout the year while the consumer keeps economic growth positive.
I wish everyone a great, safe, holiday season filled with joy!
Writing this last blog of the year, I am reflecting on all the positive steps forward that Wagner team has accomplished. Improvements in every facet of the business have been made due to focus and determination.
I am thankful for the strong economy that our country is experiencing has driven our business to new highs allowing us to add jobs and invest.
As I look at the drivers for the freight market heading into 2020, two of the three are trending well. Consumer spending and housing are both on solid footing. The exception is factory production which should see a modest improvement in 2020.
As we wrap up the year, let’s look at the numbers.
Amid the harsh discord in Washington, impeachment theater and a daily dose of trade news whiplash, the freight market is seeing a seasonal surge. Class 8 truck and trailer orders have bounced seasonally from the bottom as have spot freight rates.
Additionally, construction activity is healthy, real wages are trending higher and unemployment remains historically low. The logistics industry forecast for 2020 remains fuzzy with the distractions of a highly contentious election drama, lack of trade deals and the congressional stalemate on infrastructure.
Judging from Black Friday and Cyber Monday spending, the consumers are continuing to do their part.
Let’s look at the numbers.