Editor’s note: This story is a component of the Arkansas Transportation Report, which is produced by Talk Business & Politics and sponsored by the Arkansas Trucking Association and the Arkansas State Chamber of Commerce/Associated Industries of Arkansas.
Two closely watched freight reports confirm that the U.S. economy sputtered in the first quarter, with analysis from an Arvest economist indicating that conditions may improve but are likely to be “less than robust” in the back half of 2016.
The American Trucking Associations reported that its April Truck Tonnage Index fell 2.1%, which came on the heels of a 4.4% March decline. However, the year-to-date tonnage is up 3.5% compared to the same period in 2015 thanks to an unusually high 7.2% gain in February. Without the February jump, tonnage measured by the ATA index is up 1.8% year-over-year. ATA calculates the index based on a membership survey.
“After having an abnormally large seasonally adjusted gain in February, tonnage fell in April, in addition to the large drop in March,” said ATA Chief Economist Bob Costello. “However, while freight remained soft in April, based on other economic indicators, the outlook for tonnage is a little better than just a couple of months ago.”
As he has for the past several months, Costello said high inventory levels continue to keep tonnage numbers low.
“(T)here is still an inventory correction transpiring throughout the supply chain that will keep a lid on truck freight volumes in the near term. As a result, we are still likely to experience lackluster tonnage numbers in the next few months.”
Trucking serves as a barometer of the U.S. economy, representing 68.8% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled just under 10 billion tons of freight in 2014. Motor carriers collected $700.4 billion, or 80.3% of total revenue earned by all transport modes.
The Cass Freight Index had April shipments down 4.9% year-over-year and shipping expenditures down 8.3%. Rosalyn Wilson, founder and president of FreightMatters, who authors the monthly Cass Freight Index report, said the faltering energy sector is a factor in the slow start to 2016.
“The U.S. economy decelerated in the first four months of 2016. The slowdown was caused by the continued decline of the global economy; the reticence of the consumer sector to increase its buying; the loss of jobs and income from the plunging oil costs (which shut down the fracking business and cut back on coal shipments); very high inventory levels across the entire supply chain; and poor export figures due to both the strength of the U.S. dollar and a decline in worldwide demand,” Wilson noted.
Wilson is not optimistic conditions will improve in the near term.
“Eyes are on the Chinese economy, which has been extremely unstable and can have a big effect on world economies if it continues to falter. Based on the trends of many economic indicators, it appears the economy may get worse before it gets better,” she said.
The Cass Freight Index tracks monthly levels of shipment activity, in terms of volume of shipments and expenditures for freight shipments based on the $26 billion in annual freight payables processed by Cass Information Systems.
Clay Nickel, an economist and director of Investment Strategy for Arvest Bank, said inventory levels could hurt second quarter economic growth, but expects the pace of growth to rise in the third and fourth quarters.
“While still elevated inventory levels could act as a drag on second quarter economic growth, we anticipate annualized growth rates for the third and fourth quarters of 2016 in excess of 2% with the entire year growing a bit shy of 2%. These levels of growth are less than robust, but are an improvement from the lackluster, sub-1% annualized growth in the first quarter,” Nickel told Talk Business & Politics.
Following are other economic notes provided by Nickel.
• “While recession risks in the US are slightly elevated, a recession in the US is unlikely over the next 12 months.”
• “Recent dollar strength, after a respite from December through April, will weigh on US exports and we would anticipate further dollar strength into 2017 and possibly beyond, albeit at slower rates of change than experienced during the meteoric rise during the fall of 2014 and spring of 2015.”
• “Longer term, the Panama Canal expansion project could be a tectonic shift in US export/import activity and transcontinental transport, but it is too early to tell how transportation will be altered specifically and who will benefit or be disadvantaged.”
The U.S. economy grew at a tepid 0.8% in the first quarter of 2016. The revised estimate of the first quarter percent change in real GDP is 0.3 percentage points more than the advance estimate issued last month.
Despite the three-tenths of a percentage point gain, the U.S. economy has decelerated in three consecutive quarters from the strong 3.9% growth in the second quarter of 2015. Growth in the third quarter of 2015 was 2%, while fourth quarter GDP has now been revised to 1.4%. The third and final GDP estimated for the first quarter will be released June 28.