October Tonnage Gains 2%

This story appears in the Nov. 30 print edition of Transport Topics.

Stubbornly high inventories limited October truck tonnage growth to 2% from the same month of last year, signaling that the plodding pace of freight continues, American Trucking Associations reported.

The advanced seasonally adjusted index, which measures for-hire truck tonnage, was 1.9% higher in October than September, to reverse sequential declines in August and September, ATA announced Nov. 24. The last time there were two sequential declines was nearly two years ago.

“It was good to see tonnage increase nicely in October after contracting a total of 1.6% in August and September,” ATA Chief Economist Bob Costello said. “I will be the first to tell you that tonnage, despite being close to a record high in October, has not been strong.”

The October index was 135.7, just below the all-time record 135.8 set in January.

That month also represented a 6.7% increase above the weather-plagued January 2014 reading.

However, since January, year-over-year growth has slowed to the point that the increase has averaged 2.2% since April, hurt by the recent buildup of unsold goods.

“Like I’ve said over the last couple of months, I remain concerned about the high level of inventories throughout the supply chain,” Costello recapped in a statement, noting that it wasn’t a good sign that inventories relative to sales rose in September.

The U.S. Census Bureau’s latest report showed that inventory relative to sales was at the highest in five years and was about 5 percentage points above October 2014.

James Meil, principal industry analysis for ACT Research, also underscored inventory’s importance.

“Sometime around midyear, the economy probably built up too much inventory,” he told Transport Topics. “That doesn’t mean the economy is bad. It means that, until we get through these inventory issues, that freight will be suppressed a little bit.”

Inventory also was a concern for others.

“We remain cautious about the near-term outlook for freight demand, given elevated inventories and soft manufacturing demand,” said Robert Salmon, a Deutsche Bank analyst, noting that the October increase was better than the average 1% rise over the past five years.

Increased inventory also was the main factor behind the Nov. 24 announcement from the U.S. Department of Commerce that third-quarter GDP growth was revised upward to 2.1% from 1.5%.

In a broader sense, Meil said, the economy is “flat-lining.”

“The economy is not strong,” the ACT economist said. “It’s not weak. It’s right in the middle. When you add the positives and negatives together, we are on a very, very slow growth path.”

Costello said that despite the uneven economy, tonnage has improved 3% year-over-year through October.

“The good news is that factory production is still growing,” an ATA economic report said, and is at a seven-year high. What’s changed is that the pace of growth is slower than earlier this year in the factory sector.

Housing is another positive factor for tonnage, Costello said, because it generates heavier freight, such as appliances purchased by homebuyers.

Tonnage is being hurt, on the other hand, by the drop-off in energy exploration that supported movements of water, sand, pipe and other fracking products. As a result, industrial production that includes the weaker mining and utilities industries, declined.

“All of these numbers really fit with an economy that has some good parts to it and some not-so-good parts,” he said.

In addition, the index of leading economic indicators rose for the first time in four months and is at the highest level since early 2007.

Costello’s report said the rise in the leading economic indicators signals “moderate economic growth over the next three to six months.”

Meil agreed.

“The one thing you can say about slow growth is that it’s sustainable,” he said. “What you see now is going to continue next year.”

The economy should keep growing slowly, he said, because there are no “bubbles” in the economy, such as housing and technology, that led to past recessions when asset values cratered.

One risk, however, is slackening demand overseas, Meil added.

A 2016 question mark is how fast the overstocked inventory situation will be resolved.

“Inventory levels will have a negative impact on truck freight volumes over the next few months,” Costello said.

Meil said he expects it will take two or three quarters to work off the excess inventory unless the economy deteriorates.

ATA’s tonnage report also showed that not-seasonally adjusted tonnage was 139.8, or 2.1% higher in October compared with September. On a year-over-year basis, the not-seasonally adjusted index dipped 0.5%.

ATA revised September’s seasonally adjusted tonnage to 133.1 from 134.2, the original index number when preliminary results for September were released.