Supply Chain Blog

Better economy, questions remain

 

Dear Friends,

There is a lot of positive news that I’d like to share this week. In a nutshell, the economy appears to be doing a little better, buoyed by a bump in consumer spending and manufacturing. 

While the jobs report was disappointing, it’s good to remember that there are plenty of jobs out there, but the problem is having the people with the skills to fill those positions. At some point with this low unemployment rate, new jobs were bound to stall out. 

Consumers spend in earnest 

Consumers spent at the fastest pace in nearly seven years in April, the latest sign of the economy picking up a little steam. The Commerce Department’s measure of personal spending, which includes everything from beach towels to lunch at the local diner, increased 1.0 percent in April from March. This category accounts for more than two-thirds of economic output in the U.S. 

spendingAlso helping consumers was an uptick in earnings. Personal income rose 0.4 percent in April and spending took a small bite out of savings. The personal savings rate in April was 5.4 percent, as compared to 5.9 percent in March; a sign of consumer confidence. 

Wages increased 2.5 percent on a year-over-year basis in May, essentially the same as in April. Hourly compensation (including salaries, health care, and retirement benefits) jumped to a 3.9 percent annual rate in the first quarter. Total compensation rose 3.7 percent over the past year, marking the biggest annual gain in two years. 

The bad part is that productivity is not keeping pace. The Labor Department reports that labor productivity, or the amount of goods and services employees produce per hour worked, fell at a 0.6 percent annual rate in the first quarter. Higher wages coupled with lower productivity puts pressure on corporate earnings. 

Home business strength

Home prices are soaring despite demand and supply constraints. The S&P/Case-Shiller national home-price index has crawled back to within 4 percent of its 2006 peak. Remember that 30 percent drop in 2012?

The Commerce Department reported that April sales were the strongest in more than eight years with a 17 percent bump from March. Home prices have grown at a rate around 5 percent since 2015 in many markets, caused by low supply and higher demand.

It’s reported that first time buyers are having a hard time unless they have perfect credit and lots of money for a down payment, as prices rise and credit remains tight.  

The hottest regions in the country, primarily on the West Coast, saw prices rise at a double-digit pace in March; with Portland, Oregon reporting a 12.3 percent year-over-year gain, Seattle showing a 10.8 percent gain, and Denver logging a 10 percent increase.

Service Sector takes a break

The Institute for Supply Management (ISM) said its index of nonmanufacturing activity fell to 52.9 in May, its lowest level since February 2014, and a drop from 55.7 in April. This is worrisome as the service sector is a large part of our GDP and powers about 90 percent of the labor market. Any reading above 50 signifies expansion. You can see the trend is going the wrong way.

On the other hand, the Commerce Department reports that total revenue at service-providing firms rose an estimated 3.6 percent in the first quarter compared with a year earlier. That was up from annual growth of 2.2 percent in the fourth quarter and 3.1% in the third quarter.

Job concerns

The employment index fell to 49.7 showing contraction and reinforcing the weak report from the Labor Department showing the U.S. economy added just 38,000 nonfarm payroll jobs in May. The ISM services report also covers mining and utilities, two areas that have been hit by low commodity prices.

While below the 12-month average of 56.0, this still signaled growth in the services sector. Fourteen of the 18 industries surveyed by the ISM reported growth in May.

A sign of the slowing transportation market and growing warehousing industry, the Bureau of Labor Statistics says that warehousing businesses have added 14,600 jobs since January. The for-hire trucking industry has cut 3,400 jobs in the same period.

Manufacturing improves 

In other more positive news, the ISM manufacturing index rose to 51.3 in May, up from 50.8 in April. May was the third consecutive month that the index has been above 50. 

It’s expected that with growing consumer spending, increased construction, and less of a drag from the strong dollar helping exports; the trend will remain positive for the rest of the year. 

While headwinds remain, they’ll be blowing less hard as oil and commodity prices recover and the dollar has weakened. 

The inventories index, which measures whether factories are increasing or drawing down their supplies of materials, saw its eleventh straight month of shrinking levels in May. Manufacturers were reluctant to stockpile more materials until they were more comfortable that orders were coming in. 

Trucking picks up – a little 

Load board operator DAT Solutions reports that the national average rates for truckload and flatbed each raised a penny on increased demand for capacity in the week ending May 28th. There were 8.5 percent more available spot loads plus higher fuel costs played a role. 

An 8.5 percent increase in the total number of available spot loads and higher diesel prices played key roles in the spot rate picture. Available van loads leaped 16 percent while the number of available trucks remained unchanged pushing the average van rate to $1.54 per mile. The van-to truck ratio jumped 16 percent to 1.9 available loads per truck. 

By region, leading markets for average outbound spot rates include: 

  Trucks  West: Los Angeles, $2.01/mile, up 8 cents

    Midwest: Chicago, $1.74/mile, up 4 cents

    South Central: Dallas, $1.50/mile, up 2 cents

    Southeast: Charlotte, $1.82/mile, up 3 cents

    Northeast: Allentown, Pa., $1.80/mile, up 2 cents 

This isn’t enough to help carriers as costs rise. The largest truckload carrier, Swift Transportation, reports they have taken 300 tractors out of service to cut capacity and is now relying on the spot market to keep their equipment rolling. 

As long as retailers and manufacturers remain cautious about inventories, we should see this trend continue throughout the year. 

Railway blues 

As seen in the truckload segment, intermodal is soft and rail demand has continued to weaken this year as coal and oil remain soft industries. 

According to the Association of American Railroads (AAR) rail volumes were down in the week ending May 21st as carloads fell 10.6 percent and intermodal loads were off 6.5 percent. 

Year-to-date through the first 20 weeks of 2016, U.S. railroads reported cumulative volume of 4,803,310 carloads, down 14 percent from the same point last year; and 5,150,727 intermodal units, down 1.7 percent from last year. 

Despite lower volumes Class I railroads continue to have good earnings showing that they are doing a good job of managing their variable costs. Service has improved over the last year. 

At Wagner Logistics 

Business is good at our 70 year old company as we work on expansion plans into new markets with new distribution center operations. The Wagner transportation team is humming, moving loads for clients; and, we are aggressively seeking new customers while expanding with existing ones. 

I am pleased at the progress we are making with our business intelligence tool linking data points from all of our systems (WMS, TMS, CRM, Accounting, Payroll, and Maintenance) to pull real time information into dashboards for internal and customer use.  

Should you have a project for warehousing and/or transportation please give us a call. We would love to have the conversation about how we may add value to your supply chain. As we say every day, Bring It!

Have a great day,

John Wagner Jr.

About Wagner Logistics

Wagner Logistics has been honored 15 years in a row by Inbound Logistics as a Top 100 3PL provider, we offer dedicated warehousing, transportation management, packaging and assembly operations across the United States with over 3,000,000 sq. ft. Current offices include Jacksonville FL, Cleveland OH, Pine Bluff AR, Dallas, TX, Omaha, NE, Clinton, IA, Edgerton, KS, and Kansas City MO and KS. We provide genuine customer service to our customers and our superior onboarding process will make your customer’s transition seamless. We work tirelessly to find innovative solutions to reduce supply chain costs while increasing your speed-to-market with our award winning technology. 

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