Truck Parts and Service | Heavy Duty Trucking, Aftermarket, Service Info
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Inside the Numbers Weathering a choppy recovery Slipping truck orders, softer indicators are worrisome By Avery Vise avise@randallreilly.com in two years. Diesel prices are up. And de- spite 8.3 percent national unemployment, fl eets can't get and keep enough drivers. Is the recovery in trucking stalling? Possibly, but it's too early to declare C these warning signs to be the beginning of a long-term downward trend for fl eets. Moreover, there are some positive signs for the future. lass 8 truck orders have dropped month-to-month in six of seven months this year and are at their lowest levels cators of near-term trucking activity is the ratio of inventories to sales. Smaller ratios mean normal or even accelerated ordering and shipping cycles. Larger ratios lead businesses to cancel orders and delay new ones. Th e latter happened in late 2008, and the result was a horrible year for freight volume as manufacturers, wholesalers and retailers worked off inventories they sud- denly realized were too high. Over the past couple of years, the inventories-to-sales ratio had been fl irting with record lows, and that correlated with A long-time negative is turning positive. Here's what's happening: Manufacturing indicators are weak. In June and July, the Institute for Sup- ply Management's closely watched PMI showed a very slight contraction in the manufacturing sector, breaking a three- year expansion. Th e component index for new orders also has indicated slight contraction in the past couple of months. And even the good headline news isn't so reassuring when you dig deeper. For example, new orders for durable goods were up a healthy 4.2 percent in July, but if you strip out orders for transportation equipment, that fi gure falls to a 0.4 percent decrease. Th at's good news for carriers tied to the automotive and commercial aircraſt industries, but the benefi ts aren't broad- based. Inventories throughout the economy aren't quite so lean. One of the best indi- the recovery in trucking. But the ratio has grown from 1.26 in April to 1.29 in June. It's premature to fret over this preliminary fi gure until we see numbers for July and August, but it's certainly cause for concern. Th e rest of the world is slowing. With much of America's raw materials, machin- ery, parts, components and fi nished goods destined for foreign customers, the U.S. manufacturing and mining sectors are ex- posed to global forces. And the rest of the world isn't looking good. Most of Europe is in a recession that could grow far worse. China's growth is slowing — even by the government's own offi cial estimates, which likely are infl ated. Speaking at last month's Commercial Vehicle Outlook Conference in Dallas, James Meil, chief economist for Eaton Corp., said that Eaton's own estimate of the year-over-year rate of industrial production growth in China is less than half the offi cial estimate. Housing seems to be recovering. All principal indicators regarding the hous- ing market — starts, permits, new-home sales and existing-home sales — have been consistently higher year over year in recent months. True, those gains are off a very low base, but consider also that U.S. employment and population are gradually growing and that very few houses have been built in the past four years. Accord- ing to Census Bureau estimates, there was only 4.6 months' inventory of new homes available for sale in July at the current sales rate. You have to go back to the overheated home-buying days of 2005 to fi nd invento- ries so tight. Customers that haul lumber and shingles as well as carpeting, furniture and appliances should benefi t from a hous- ing recovery. But the eff ects would ripple across the whole industry because home builders and trucking companies tend to recruit from the same labor pool. Fleets already are having trouble get- ting qualifi ed drivers, and the extra com- petition could stifl e growth even more. Th e downward pressure on fl eet growth might not be ideal, but the benefi ts of a housing rebound clearly would outweigh that downside. All of these trends might not trans- late into higher truck orders, but at least we should see solid utilization of exist- ing equipment. So we aren't looking at another 2009. It's probably just going to be a little more interesting. Avery Vise is executive director, trucking research and analysis for Randall-Reilly Business Media and Information. 36 TRUCK PARTS & SERVICE | September 2012