Summary
Some stock technicians who compare numbers from the past to today are throwing more red flags regarding the recent quarters’ very positive numbers because the transports are not showing it. Transports are a good leading indicator in real time when real tonnage grows or shrinks. Shipper planning leads that of course led by true economic activity. History tells us a number of things.
Analysis
I am a historian who tries to adapt numbers to reality - plus I’m a simple person. My economics classes taught me GDP was about CIG (not cigarettes), but “Consumer, Investment and Government” spending. Then we add in Exports and subtract Imports - and then dig into what the numbers do to it all.
As written previously, we have grown at an average real GDP rate of a little over 3% since WWII. Over the last decade the Consumer has made up a little over 2.5% with Investment and Government making up a half-percentage point each and our trade imbalance taking away a few tenths. Fourth quarter GDP ’08 was down 5.4%, first quarter ’09 was down 6.4% and the second quarter was off only 1%.
While these numbers seem small to some, little changes make a big difference. For us in trucking, it’s always been a multiplying effect - like 3x+ on a percentage basis. Consumers eat, drive and keep their homes full of stuff - and that tonnage stays pretty consistent. Farmers grow their crops and that tonnage stays pretty consistent. On the other end, auto and home building have swung us the most, as it does the general economy.
Within the Consumer segment, the accelerated spending growth of over 5% over the last dozen years has been due to increasing pay, home appreciation (and ATM-effect), from investments and borrowing. All of these have been negatively affected - with Baby-boomers slowing spending (like me) and others starting to move into Social Security with a negative net. A large majority of those who have been laid off in this recession are males - and high earning ones proportionally.
Some analysts say that a full 1% of GDP in the third quarter growth was consumer spending from the Cash-for-Clunkers program. We in trucking see it more as improved utilization in the current trucking fleet moving parts around to build cars to replenishment dealer lots. That is going on today. Additionally, we see another half-point GDP from home improvement with existing and some new home freight-related movements as a result of the Government home-buyers rebates - and cheap prices.
Then there are the inventories being adjusted upward, which is positive for trucking. While exports are an opportunity for us as a notion and transport, we need global growth to drive that. Regardless, we have seen that it be a bigger drag than in historically (i.e. imports are way up).
As quoted in the reference article: “The ETF that tracks the Transports, the iShares Dow Jones Transportation Average Index Fund - which includes holdings like Burlington Northern Santa Fe, CH Robinson Worldwide, FedEx, JB Hunt Transport Services, Union Pacific (UP) and United Parcel Service (UPS) - has slipped 3.7% in the past five days.”
We know that rail has been off in all sectors. Domestic Intermodal has been hanging in there relatively well. Brokers have been adding to the downward rate pressures. While the article throws issues into the mix about oil prices going up. I tend to disagree, since surcharge offsets fuel costs at these companies pretty well (sometimes more than real cost). It’s more about the tonnage outlook.
Why do things feel a little better in truckload trucking? Many saw freight bottom in February of this year while inventories continued to be pulled down through but being moved around, which drove the second-quarter GDP number negative. In the trucking world, we are not seeing the typical 3% GDP tonnage, probably a third of it. That tells the on-the-ground story.
As history tells us, it’s about the “C-word” - the consumer. We gotta see people back to work and consuming to see that number improve. That will result in us just plugging along through 2010.
