Freight reports show ‘tepid’ U.S. economy, consumer gain from Iranian oil

Two national freight reports paint a picture of a “tepid” U.S. economy hampered by a strong U.S. dollar and struggling retail sales. And, in a somewhat counterintuitive twist, one report says a factor that could boost consumer spending in the near future is the release of Iranian oil into the global energy market.

The Cass Freight Index shows that June shipments were down 3.4% compared to June 2014, and shipment expenditures were down 5.8%. Rosalyn Wilson, a supply chain expert and senior business analyst with Pasadena, Calif.-based Parsons, who provides economic analysis for the Cass Freight Index, said the slow June follows a slow first quarter.

“Manufacturing was very weak for the first half of 2015, but started to recover in June. First quarter orders were sluggish because of both bad weather and shipments that got tied up in the West Coast port problems. The strength of the U.S. Dollar in world markets has severely curtailed exports, which has contributed to the drop in manufacturing,” Wilson noted in her report.

Wilson predicts oil and gas prices will fall as Iranian oil enters the energy market. The lower prices will benefit consumers and improve consumer spending patterns.

“The just‐completed nuclear deal with Iran will lift the sanctions against Iranian oil, so that should begin to flow again,” Wilson noted. “This will dramatically lower the price of oil and give consumers some extra cash in their pockets, which should translate to stronger retail sales in the latter part of the year.”

Cass uses data from $26 billion in annual freight transactions to create the Index. The data comes from a Cass client base of 350 large shippers.

The U.S. Bureau of Economic Analysis reported Thursday (July 30) that real gross domestic product in the U.S. rose 2.3% in the second quarter of 2015. The new GDP report shows that second quarter growth is well ahead of the revised 0.6% real GDP growth in the first quarter, but slightly behind the final GDPNow model forecast of 2.4% projected by the Atlanta Fed on July 27.

The American Trucking Associations’ Truck Tonnage Index was down 0.5% in June and followed a revised gain of 0.8% in May. Year-to-date, tonnage is up 3.4%.

The not seasonally adjusted index, which represents the change in tonnage actually hauled by the fleets before any seasonal adjustment, was 4.2% better than May.

“With flat factory output and falling retail sales, I’m not surprised tonnage was soft in June,” ATA Chief Economist Bob Costello noted in his report. “I also remain concerned over the elevated inventory-to-sales ratio for retailers, wholesalers, and manufacturers, which suggests soft tonnage in the months ahead until the ratio falls.”

According to the ATA, trucking serves as a barometer of the U.S. economy, representing 69.1% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9.7 billion tons of freight in 2013. Motor carriers collected $700.4 billion, or 80.3% of total revenue earned by all transport modes.

Costello said the retail sector needs an “inventory correction” and he hopes it will happen over the summer.
 
“When the correction ends, truck freight – helped by better personal consumption – will accelerate,” he said.

Brad Delco, a transportation industry analyst with Little Rock-based Stephens Inc., said in a recent report about Lowell-based J.B. Hunt Transport Services that he expects “accelerating” freight demand trends in the second half of 2015 as congestion subsides from the West Coast port issue.

Wilson, in the Cass report, provided the following economic analysis.
• “The economy is still tepid, but freight is improving despite the slow growth. As we head into the second half of the year, expect a leveling off or even a drop in July shipment volume.”

• “Things will begin to pick up again in August as we head into school and then holiday shipping.”

• “No remedy is expected from the Federal Reserve to lower the strength of the dollar, so exports will continue to be very weak. The same dollar strength makes import goods more attractive for the U.S. consumer because of the increased buying power.”