Freight shipments and payments were both up in September, in line with the expected seasonal rise, according to the Cass Freight Index. Further, the levels of month-to-month increase for both measures were higher than in 2010. While the results are welcome, other key economic measures - as well as forecasts for the remainder of the year - do not indicate that this is the beginning of a trend:
* Retail sales are not gaining momentum, and the holiday period is expected to be lackluster, with only a 1- to 2-percent increase over last year.
* Although more than 100,000 jobs were added in September, compared to zero new jobs in August, the unemployment rate remained at 9.1 percent.
* GDP growth for the first half of 2011 was less than 1 percent. It is forecast to hit no more than 1.5 percent for the last quarter. Forecasts for GDP growth for the next 12 months are averaging about 2 percent, which is too low to make any headway with unemployment.
* The Conference Board Consumer Confidence Index took a nose dive in August and remained essentially unchanged in September. Consumer assessment of current conditions declined for the fifth consecutive month, a sign that the economic environment remains weak.
* Overall, consumer spending - which accounts for roughly 70 percent of GDP - picked up only 0.4 percent in the second quarter. That was slightly better than the initial 0.1-percent estimate, but marks a significant slowdown from growth of 2.1 percent in the first three months of the year.
* The cost of essentials is rising: Food prices and the cost of shelter are up. Higher clothing prices have taken hold, and over the entire year apparel prices have increased at their fastest rate since 1992. Year-over-year fuel prices are up over 35 percent. These commodities represent the must-haves, and many consumers are now spending more of their dollar on needs, not wants. There are no signs that the consumer sector is going to turn around in the foreseeable future.
The index for freight shipments jumped 5 percent in September and is 7.5 percent higher than a year ago. Although all modes reported gains in volume during the month, we do not expect shipment volumes to continue to expand at this level - partially as a result of lower order volumes in both the U.S. and abroad in recent months. The Institute for Supply Management's index of manufacturing showed its 26th consecutive gain, rising 1 point in September. At 51.6, the index is showing expansion, but a measure below 50 signifies contraction, indicating the fine line we are treading. The Production sub-index registered 51.2 percent, a return to growth after contracting in August for the first time since May of 2009. However, the New Orders sub-index contracted for the third consecutive month; and the Backlog of Orders sub-index contracted for the fourth consecutive month, falling to its lowest level since April 2009.
Dollars spent on freight reversed the steady decline we've been experiencing since June and rose 4.6 percent, coming in 17.6 percent higher than a year ago. The rate of increase in rail rates has slowed, while truck rates rose over the month. Trucking companies have had difficulty covering their increasing costs in areas such as driver pay and maintenance, so the rate increases are not an indicator of higher profits for carriers. Rates should level off for the remainder of the year, and volumes will hold steady due to seasonal freight shipments.
Global economic growth expectations have been lowered across the board for the next year, and more economists are suggesting a double-dip scenario. We are likely to enter a recession again by early next year, but with leaner inventories and no credit crisis, we will not find ourselves in the same dire predicament we faced during the recent recession. Whether the state of affairs meets the criteria to officially qualify as a recession is not a material issue. Whether the growth rate is negative or an anemic 1 to 2 percent like we have been experiencing, the best case outlook is the same - growth below historical averages going into 2012 and slow recovery for the freight sector.
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Source: Cass Freight Index
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