John Wagner Jr examines the deficit in economists predictions for back to school spending as well as analyzing figures from June, July and August in the trucking & logistics industry
Kids are heading off to school as the summer season winds down and the economy continues its slow trend upward. Final back-to-school retail sales numbers aren’t in yet but it’s looking like parents’ spending may not be living up to economists’ expectations.
The National Retail Federation forecasted a 3.3 percent uptick in sales to $74.9 billion this year. But we are seeing dorm room décor, tablets, pencils, scissors and laptops heavily discounted in order to push through inventory and sales. While we wait to see what the final numbers are (always a hint to what consumers might do this fall and holiday season), retail sales were fairly flat in July.
After a 0.2 percent rise in June, the Commerce Department reported that, excluding auto sales, retail gained only 0.1 percent. Even though consumer confidence numbers are good, it appears their actual spending is being held back by stagnant wages and low access to credit.
The winning categories last month were apparel, grocery and personal care stores, so let’s hope the other categories pick up and lead us into a prosperous fall season. Since consumer spending drives 70 percent of the U.S. economy, we need it to keep the party going in manufacturing.
Factories Roll On
Speaking of manufacturing, U.S. factories were humming in July, according to the Institute for Supply Management, with the fastest growth seen in three years. The ISM monthly manufacturing index expanded to a reading of 57.1, its highest since April 2011.
As a reminder, any reading over 50 indicates expansion. New orders increased in July to 63.4 from 58.9 in June. As expected, hiring in this sector increased to 58.2 in July.
The Commerce Department said business inventories increased 0.4 percent in June after a 3 percent rise in May. Retail inventories likewise rose 0.5 percent in June after a 0.3 percent increase the month before.
I am often asked why freight rates are increasing so quickly. The answer lies in the simple notion of supply and demand. For better or worse, regulatory burdens have made it difficult to hire qualified drivers and have impacted productivity while other regulations have increased the cost of equipment.
Even though trucking added 2,300 jobs in July after 3,900 in June, the slow-growth economy has demanded more driver capacity that is just not there.
While carriers are sorting through the driver challenge, the demand side is not going away, although there are indications that freight stabilized in July.
The Department of Transportation released its freight transportation services index (TSI), which includes all modes of transportation, at 2.8 percent in June, down 0.9 percent from May.
The DAT North American Freight Index, which tells us about spot truck market activity (measuring freight not moving under contract), jumped 32 percent in July from the same month in 2013. DAT also said that van freight was up 40 percent, flatbeds up 52 percent, and refrigerated rose 28 percent from last year. However, the July index was down 11 percent over June 2014.
The Cass Freight Shipment Index also shows freight taking a breather in July; the index was down 3.9 percent from June.
On the equipment side it looks like carriers are replacing equipment and carefully adding to their fleets. ACT Research says Class 8 truck orders jumped 70 percent year over year in July to 29,900 units, the highest July sales ever recorded. For the year, truck orders sit at 198,828 or 33 percent over last year’s sales.
- See more at: http://www.wagnerlogistics.com/index.php/wagner-blog/104-will-back-to-school-live-up-to-economic-expectations#sthash.A0wINqr6.dpuf
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