Trucking Shares Fall in Market Drop, But Analysts Confident of Industry
This story appears in the Aug. 15 print edition of Transport Topics.
Trucking stocks have suffered a thrashing this month from investors as the overall stock market bounced up and down, pressured by worries about European debt, the United States’ debt downgrade and the global economy, but several analysts expressed confidence in the industry.
On Aug. 10, the Standard and Poor’s Trucking Index was down about 25% from its high for the year, reached on July 7, while the Dow Jones industrial average fell 15.7% over the same period.
Several trucking stocks fared worse than the Dow average.
Con-way Inc. stock was down 42% on Aug. 10 from its $41.87 high for the year, Bloomberg News reported.
J.B. Hunt Transport Services was down 21% from its high, while Old Dominion Freight Line was down 26%, Bloomberg News said.
Between July 7 and Aug. 10, Werner Enterprises’ stock price fell 18.9% to $21.45.
When Transport Topics went to press on Aug. 11, a day when the Dow average rebounded 423 points, all four trucking stocks were on an upswing.
Despite the market’s nose dive, analysts expressed confidence that trucking industry indicators mirror an expanding economy.
Truck tonnage, for example, was up 4.8% in the second quarter over the same period last year, according to data compiled by American Trucking Associations.
“In the last 45 years in which we have reliable data, there has not been an economic meltdown without there first being a . . . contraction in truck tonnage,” said Donald Broughton, managing director and senior transportation analyst for Avondale Partners, a research and investment banking firm headquartered in Nashville, Tenn.
By the same token, in those 45 years, there never has been an economic recovery without first an increase in truck tonnage, Broughton added.
“So if truck tonnage is increasing, it’s wrong to expect the economy to contract. If truck tonnage were contracting, then I would be worried,” he said.
ATA Chief Economist Bob Costello said the recent market turbulence should not be considered an indicator that trucking will slip back into recession.
“I think most economists, including myself, would say we’re in for some sluggish growth,” Costello said. “But in trucking, the good news is . . . our industry’s a heck of a lot smaller than it once was, and as a result . . . we’re in a little bit better shape to handle the slow growth environment.”
Trucking certainly would welcome higher tonnage figures, but the economy and employment are not growing as quickly as needed to power a rapid recovery, Costello said.
On the upside, however, the number of carrier failures is way down from the worst days of the recession, he said.
Bankruptcy data that Broughton compiled show that in 2008, the worst year in recent history for carrier failures, 3,065 fleets with five or more trucks failed, but based on data so far, failures this year will be down to about 1,000, Costello said.
Other trucking indicators show the overall economy is on an upward path, despite the recent stock market turmoil, Broughton said.
For example, the U.S. Department of Labor employment report may not be as grim as it seems, he said.
The jobless rate for July dipped only slightly, to 9.1% from 9.2%, but Broughton is betting on bigger declines in the future.
“The reason [I know] the jobless rate will come down is that truck driver pay has started to increase,” he said, explaining that truck driver pay has proved to be a critical indicator of where overall employment is headed.
“As long as truck driver pay continues to go up, it means the unemployment rate will steadily fall or stay low,” he said.
Costello said the recent downward revision in the gross domestic product may have rattled the markets more than such issues as the European debt crisis or the downgrading of U.S. creditworthiness.
On July 29, the U.S. Department of Commerce said GDP in the first quarter of this year grew at an annual rate of just 0.4%, not 1.9% as previously reported.
“Nobody had expectations that we were in the fast lane, but we didn’t think we were in the far right lane either, and it turns out that we were,” Costello said.
However, Chris Christopher, an economist at IHS Global Insight who specializes in consumer habits, said some indicators are “too close for comfort” to assess whether the reeling stock market signaled an economic contraction.
“Consumer spending fell in June for the first time since September of 2009,” Christopher said. “Retail sales have been lackluster. The savings rate, meaning people are pulling back,” is up, he said.
In May, the savings rate was 5% and in June it ticked up to 5.4%.
Even with declines in consumer spending and in consumer confidence, however, both indicators are still in positive, not negative, territory in terms of economic growth, Christopher said.
