Supply Chain Blog

Summer season kicks off with economic growth

 

Dear Friends,

I hope everyone enjoyed a great Memorial Day holiday with family and friends. I certainly did, I played a round of golf with my Dad Sunday. June is here and the summer season has officially started. 

As the last month of the second quarter gets underway, I’m optimistic, consumers are feeling good about job security, growing pay, low interest rates and low unemployment. This confidence should bode well for a strong finish to the quarter. 

Consumers are spending 

The good people of the USA opened their wallets in April ramping up spending at the fastest pace in four months. The Commerce Department reports that personal-consumption expenditures (everything from meds to groceries) jumped a seasonally adjusted 0.4 percent in April from March. 

Personal income includes wages and other governmental assistance grew 0.4 percent in April from the prior month. The personal savings rate stayed steady at 5.3 percent. 

After the slow winter this is good news as consumers are the driver of economic growth. 

Manufacturing picks up 

The Institute for Supply Management (ISM) said its index of U.S. manufacturing activity inched ahead to 54.9 in May from 54.8 in April. A number above 50 indicates expansion. 

ISM manufacturing readings for each month this year have now been higher than any month in 2015 or 2016. 

Manufacturing is on the upswing, the constraint is finding the workforce to sustain the trend. This should lead to higher wages and create the kind of inflation that the Federal Reserve has been wanting. 

The other factor that may impede manufacturing is the uncertainty in Washington regarding regulations, tariffs and tax reform. 

Speaking of inflation 

The Bureau of Economic Analysis (BEA) said that their revised first quarter estimate of inflation adjusted GDP moved from the original estimate of 0.7 percent to a revised 1.2 percent. Personal spending increased 0.6 percent while durable goods fell 1.4 percent and autos sales dropped a whopping 13.9 percent. 

Inventory levels fell more than originally estimated dragging the GDP down by 1.07 points. Had inventories remained the same, the first quarter GDP would have been 2.3 percent. 

Second quarter GDP should come in around 3 percent. 

Home market tightens 

The National Association of Realtors (NAR) said the low supply of homes held back sales of existing homes in April. The average days a home was on the market was 29 days, a new low. 

Total existing-home sales, which are completed transactions, fell 2.3 percent. Sales are still up 1.6 percent over last year and demand remains high. 

The Commerce Department likewise reported that sales of newly built single-family homes in April dropped for the first time in 2017, falling 11.4 percent after a strong first quarter. It’s expected that this number will rebound going forward. 

E-Commerce surges 15 percent year-over-year 

The Commerce Department tells us that the first quarter 2017 e-commerce estimate increased 14.7 percent from the first quarter of 2016 while total retail sales increased 5.1 percent in the same period. 

Total retail sales for the first quarter of 2017 were estimated at $1,250 billion, up 1 percent from the fourth quarter of 2016.  E-commerce accounted for 8.5 percent of those sales. 

Retailers are responding to this growth by closing over 4,000 stores as brick and mortar stores struggle to find the right mix of physical retail locations balanced against the e-commerce wave. 

Trucking is stable 

The best news is that inventory numbers have fallen, while bad for calculating the GDP, its good news for the trucking industry. The assumption being those inventories will be replenished. 

The truckload market has seen a modest uptick due to seasonal capacity demand driven by produce. Retailers have been receiving their summer merchandise but it is still uncertain where we will go from here. 

Will consumers continue to spend? Will manufacturing continue its recent growth trend? What economic initiatives will the Trump administration be able to get through congress? 

The answers to these questions will drive the freight markets. 

According to DAT Solutions, spot rates for truckload freight fell a penny per mile to $1.68 as a national average in the week ending May 27th. Flatbeds saw a gain of a cent to $2.10 while reefers were up two cents to $2.01 per mile from the week before. 

The American Trucking Associations’ (ATA) advanced seasonally adjusted For-Hire-Truck Tonnage Index fell 2.5 percent in April, marking the third straight month of declines. It is believed that the drop in housing starts contributed to the drop as the housing market tends toward heavier freight like stone and brick which is what this metric measures. 

FTR weighs in with their data showing loadings increased 1 percent from March to April. Their tonnage data shows a 0.7 percent increase in April after a 2 percent drop in March. 

I’m looking forward to more recent data as this is not reflective of what I am hearing and seeing in the market today. The current market seems to be pretty well balanced with freight and capacity but there is sure to be a summer slowdown as is the norm before back-to-school and other fall business kicks into high gear. 

Railroads continue their recovery 

The Association of American Railroads' (AAR) reported in the week ending May 20th that their traffic grew 5.5 percent from the same week last year. Total carloads for the week grew 6.4 percent and intermodal traffic was up 4.6 percent. 

Five of the 10 carload commodity groups tracked posted increases compared with the 20th week of 2016. Those included grain- up 24.5 percent, coal- up 18.6 percent and nonmetallic minerals- up 6.4 percent. 

Commodity groups that logged decreases compared with a year ago included petroleum and petroleum products- down 16.8 percent, motor vehicles and parts- down 6.8 percent, and forest products- down 1.9 percent. 

For the first 20 weeks of 2017, U.S. railroads' cumulative carload and intermodal volume increased 4.1 percent. 

At Wagner Logistics 

Summer season is underway, vacations are scheduled reinforcing the importance of cross as freight needs to seamlessly arrive, inventories replenished as orders go out and loads need to move. We are blessed with a solid team at Wagner Logistics.  

Are you considering a change in your distribution network? Looking for trucking help in a lane? Interested in securing dedicated truck capacity for closed loop runs? If so please give me a call. Wagner has been in business for 71 years and we want to hear about your challenges. As we say everyday, 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 4,500,000 sq. ft. Current offices include Jacksonville FL, Cleveland OH, Pine Bluff AR, Dallas, TX, Omaha, NE, Clinton, IA, Kalamazoo, MI, Charlotte, NC, Memphis, TN, 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. 

Add comment


Security code
Refresh

The Wagner Team

Wagner's seasoned logistics pros competitively engage in helping your business work smarter. We do it through advantages of structure, scales and integration.

Warehouse OperationsWhat Bring It Means to Us

Whatever your supply chain challenges are, Wagner can't wait to take them on.