Chart of the Week: Building permits – USA, Flatbed Outbound Tender Rejection Index – USA, Single Family Housing Starts – USA SONAR: PRMT.USA, FOTRI.USA, SFAM.USA
If you have seen the Lego movies, you will know the theme songs quite well—“Everything is Awesome” in part one and “Everything’s Not Awesome” in part two. These songs could be the theme songs to the 2018 and 2019 economy and subsequently the freight market. The overheating and overspending in 2018 was bound to have a hangover effect at some point. Companies over-invested, driving costs higher at too rapid of a pace until demand dried up, leaving the freight market oversupplied with trucks with less to move. There is a glimmer of hope, however, as the housing and construction sectors are starting to perk up at a somewhat strange time of the year. First, let’s take a look at a few other major sectors that impact freight.
Retail demand drives a lot of the freight market throughout the year, but more significantly in the late third and fourth quarters as shippers like Walmart and Target stock the shelves for the flood of consumption that has now become embedded in American culture over the past few decades.
Retailers know that items being out of stock mean less revenue on the books that they will not be able to recover as consumers will find replacement items. That Baby Yoda doll that was so popular, going for $200 on E-bay in November, will be an afterthought in January.
Retail freight typically slows to a crawl after the fourth quarter rush is over. Looking at customs shipments in a previous chart of the week, there was a huge spike of retail imports in October 2018 that held through early 2019. So much so, that the volumes in January were higher than the seasonal peak in August and September. This led to overstocked warehouses and anomalously high regional freight volumes around the ports in 2019 as shippers rushed to avoid increasing tariffs. That will not be present in early 2020.
Looking at the manufacturing and production side of the economy, most indicators including the popular Purchasing Managers’ Index are painting a grim picture. The PMI focuses on manufacturing numbers and activity where a value below 50 indicated slowing or contracting conditions. The PMI has been below 50 the last three months. The contracting new orders component is the most concerning, as that has a leading implication into the coming months for future freight movements.
Construction spending is down roughly 2% year-over-year on average, marking the first y/y contraction since 2009-10 during the great recession. The residential component of this number, however, is showing signs of recovery, increasing from July through September. This is the first three month increase in residential spending since December 2017 through February 2018.
Building permits, a leading indicator of construction activity have increased every month since June while single family housing starts have increased every month since May of this year, indicating there may be a reason for anyone hauling construction or home goods to have a sense of optimism heading into 2020.
Flatbed operators, who rely heavily on construction and housing activity, and anyone hauling downstream goods relating to housing or residential construction should feel a little better hearing their market may be recovering from what has been a largely disappointing year for freight. Flatbed tender rejection rates, which measure the rate at which flatbed carriers are rejecting load requests have been averaging 6.63% in October and November versus 5.34% in August through September, an indication of a slight tightening of capacity.
While none of these movements are of the breakout variety, they are breaking the downward trends. The longer running small increases are typically more healthy than the short run spikes as they are more sustainable.
About the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real-time. Each week a Market Expert will post a chart, along with commentary live on the front-page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.
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