Analysts Upbeat on Economy Despite Job Losses in June

This story appears in the July 13 print edition of Transport Topics.

Trucking fleets continued to shed jobs for the 14th consecutive month in June as total U.S. unemployment rose, but experts said economic and freight indicators finally appear to be heading in the right direction.

Trucking companies employed 11,000 fewer workers in June than in May, while the U.S. unemployment rate increased to 9.5%, according to a July 2 Bureau of Labor Statistics report. Total industry employment of 1.265 million is nearly 11% below the June 2008 level. Industry employment has been falling since March of last year, when it rose by a minuscule 3,800 jobs to 1.421 million.

National unemployment in June reached the highest level since 1983 as employers cut 467,000 jobs, the Labor Department said. Not all the economic news thus far in July has been bad, however, as factory orders increased 1.2% and mortgage applications rose 11%.

“The worst is now behind us,” said Eric Starks, president of FTR Associates, an economic consulting firm that is projecting modest economic growth in the second half of 2009. “We are starting to hit a bottom and stabilize a little bit. Economic indicators have stopped falling at a rapid pace.”

“In a nutshell, it’s slow-steam ahead,” said Bob Costello, chief economist for American Trucking Associations. “I am hopeful the worst is behind us, both for the macro economy and for trucking. But just because the worst is behind us doesn’t mean trucking, or the economy, will rebound strongly.”

“For trucking, we can start looking at the light at the end of the tunnel, but it will be some time off,” said Starks, who said he believes trucking load growth won’t improve on a year-over-year basis until the second quarter of 2010.

ATA’s tonnage index was 102.3 in May, better than the eight-year low in April but still lagging 2008 levels by 11%. Last July, the index was at 113.8 and faded to 101.7 by December.

Costello, who forecasts 0.5% improvement in third-quarter gross domestic product, said he expects month-to-month index numbers will improve in the second half, but could still trail 2008.

Ken Simonson, chief economist for the Associated General Contractors, sees GDP growth of 0.5% to 1% in the third quarter and 1% to 2% in the fourth quarter as home construction increases and more stimulus money is used for road and other infrastructure projects.

From a fleet perspective, Mark Rourke, president of Schneider National Inc.’s truckload unit, told Transport Topics, “We’re not expecting any growth from where we are today, outside of some minimal seasonality during the holiday season.”

He pinpointed the reason for weak volume by saying that the economic sectors such as government, education and health-care sectors that are doing relatively well do not stimulate as much demand for trucking service as consumer goods, housing and auto markets.

Schneider is responding by seeking more business in Mexico and building its Eastern truck/rail business. It’s also taking a fresh look at food and beverage markets that have been more stable than other freight business, he added.

Costello noted that refrigerated carriers haven’t been hit as hard as other segments of trucking because “we all have to eat.” Tank, dry van and especially flatbed business continue to be weak, he said.

Besides consumer goods, autos and housing, other industries still are struggling.

Simonson said that while workers are being hired for stimulus projects, overall highway spending and employment fell in May.

“I expect the gap to narrow as more stimulus money turns into construction put in place, but the full year total may not match 2008,” he explained.

A second-half bright spot could be a resumption of job growth, said a July 6 report by the Conference Board, whose employment index worsened last month from May and is 22% below June 2008.

“Compared to the beginning of the year, the decline in the employment trends index has significantly moderated, and we therefore expect job growth to resume around the end of the year,” said Gad Levanon, an economist for the group.

Stock analysts’ reports noted the same trends.

“Signs emerged over the course of the second quarter of 2009 that freight volumes, while still bad and down year-over-year are indicating sequential month-to-month improvement,” said a July 7 report from Morgan Keegan analyst Art Hatfield.

Analyst Ed Wolfe of Wolfe Research said in a July 7 report that 13 of 14 freight indicators such as ATA’s tonnage index and the Cass Freight Index were “clearly less worse,” primarily because of traditional seasonal improvement in June.

“While we continue to hear about sequential upticks in demand, this is normal in June but doesn’t bode well for the seasonally slower July and August months,” Wolfe’s report said.

The inventory to sales ratio has held steady for three consecutive months, Hatfield noted, after getting worse for eight consecutive months as businesses trimmed inventory, dampening demand for trucking.