Freight reports suggest a healthy U.S. economy for rest of 2014

Although the first quarter U.S. GDP hit negative territory for the first time in almost three years, two trucking and shipping reports suggest the U.S. economy is growing and may improve during the second half of 2014.

The American Trucking Associations’ Truck Tonnage Index was up 1% in May after a revised 0.9% gain in April. For the first five months of 2014, tonnage is up 2.9% compared to the same period in 2013, according to the ATA index. The index is off just 1% from the all-time high in November 2013 (131.0).

The not-seasonally adjusted index, which represents the real change in tonnage hauled by the fleets, was 1.8% above the previous month.

Shipments were up 1% and spending on shipments were up 1.1%, according to the most recent Cass Freight Index.

“North American freight shipments and expenditures continued to buck the historic trend and increased again in May. The first five months of 2014 were the strongest since the end of the great recession,” noted the Cass report. “While this seems counter to the dismal GDP reading for the first quarter, which shows a one percent drop or a contraction in the economy, much of the decrease in GDP can be attributed to declining inventories, slowing exports and weather‐related issues. Many other economic signs, especially growth in the manufacturing sector, point to an uptick in the five‐year recovery and a continued increase in freight movements.”

Cass uses data from $22 billion in annual freight transactions processed by its information processing division to create the index. The data comes from a Cass client base of 350 large shippers.

ATA Chief Economist Bob Costello said the gains aren’t as healthy as in 2013, but they are more broad.

“While the year-to-date improvement is running behind last year’s robust 6.3% increase, gains this year are more broad-based,” Costello said in the ATA report. “It isn’t just heavy freight for sectors like tank truck and flatbed from energy and housing that are improving this year. Now, generic dry van trailer freight is doing better as well, which wasn’t the case in 2013. This is a good sign for the economy."

Trucking serves as a barometer of the U.S. economy, representing 68.5% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods, according to the ATA. Trucks hauled 9.4 billion tons of freight in 2012. Motor carriers collected $642.1 billion, or 80.7% of total revenue earned by all transport modes.

Rosalyn Wilson, a supply chain expert and senior business analyst with Vienna, Va.-based Delcan Corp., said May shipments were 3.6% higher than a year ago and 26.4% higher than shipment levels at the end of the 2009 recession.

“The health of the freight market is a very good indicator of the direction in which the economy is moving. All indications point to moderate growth in freight over the next couple of months, which will bode well for the economy in general,” Wilson wrote.

Wilson, who authors the Cass report, said increased activity is creating problems in the shipping industry, which are not helped by new federal hours-of-service rules that reduce the time a driver can be in a truck.

Broadly, the Department of Transportation rules reduce a driver’s average maximum allowable hours of work per week from 82 hours to 70 hours, a 15% reduction. A controversial part of the new rules, which went into effect in July 2013, is the 34-hour restart rule. Officials in the trucking industry have said the rules do nothing to promote safety and instead drive up costs for the industry which are then passed on to consumers.

“Capacity problems are being experienced in both the trucking and the rail industries as volumes grow. The impact of productivity‐reducing truck regulations has exacerbated the driver shortage, further limiting capacity despite the strong growth in the size of the truck fleet in 2014.”

Brad Delco, a transportation industry analyst with Little Rock-based Stephens Inc., also sees positive activity in the sector.

“My sense is freight activity is up 3%, plus or minus 1%,” Costello said in an e-mail interview. He added that industry capacity – number of trucks, trailers, rail cars, etc. – is down between 1.5% and 2%.

Delco estimates that the hours-of-service rules have a negative 2%-3% capacity impact “for those carriers that actually follow the rules.”

The Cass index included the following details about overall economic health.
• Although the performance of the economy was very weak overall, freight continued to gain momentum and accelerated in the second quarter.

• The downward revision in first quarter GDP is not a harbinger of things to come. The bad weather contributed to a substantial drop in business inventories, which is a negative factor for GDP but an overall positive for the economy.

• Retail sales slowed in April, but picked up again in May. Home construction is picking up again now that the weather is better, despite rising mortgage rates.

• The employment picture looks better with a steady increase in jobs creation and a decline in claims for unemployment benefits. In its latest weekly unemployment report, the Labor Department reported that claims for unemployment fell to the lowest level since 2007.