The Game of Clue: Economics Version
Article by John Wagner Jr from Wagner Logistics published on August 1st 2013
In what direction is the U.S. economy headed today? We got some good clues from the Federal Reserve Bank as it pumped $85 billion into the economy. On Wednesday the central bank pointed to “modest” growth, higher mortgage rates and low inflation and said it would continue to buy bonds for now. Fed Chairman Ben Bernanke has said they will watch the unemployment numbers closely before backing off this support.
Speaking of those numbers, employers have added an average of 202,000 jobs a month this year, up from about 180,000 a month over the last six-month period.
How are consumers feeling about the economy? The signals are mixed. The University of Michigan said that its final reading of consumer sentiment in July was 85.1, about 13 points higher than a year ago and up a point from last month. On the other hand, the Conference Board said that consumer confidence is down so it’s a mixed bag with little clarity for this important economic indicator.
One very important factor in keeping consumers optimistic is the confidence people gain when they know their home is worth more than they paid for it. The National Association of Realtors said that existing home sales fell 1.2 percent in June after a revised gain of 3.4 percent in May. Historically low mortgage rates should keep sales on pace through the next quarter.
Durable goods orders jumped 4.2 percent in June; however, 98 percent of the gain came from defense and aircraft buying. Excluding these sectors, orders were up only 0.1 percent. The June increase follows a revised 5.2 percent jump in May.
While we hear a lot of talk in the U.S. about infrastructure spending, Mexico announced it would invest almost $100 billion in road, port, and rail over the next five years. Transportation Secretary Gerardo Ruiz Esparza said that spending would upgrade over 3,000 miles of highways, modernize seven ports and four airports, and improve rail freight flowing throughout the country. Mexico is positioning itself to be the logistics platform for Latin America.
The American Trucking Associations said that for-hire truck tonnage moved 0.1 percent higher in June after increasing 2.1 percent in May. The June number is the highest level on record, pushed higher on great numbers for auto sales, energy production, and other heavy freight. Year over year, this meant a 5.9 percent increase and a 4.7 percent gain year to date.
Finding and retaining qualified employees and drivers is a real challenge, according to a recent Transport Capital Partners survey. Almost two-thirds (65 percent) of carriers noted difficulty in finding qualified maintenance mechanics. Thirty percent said they are having problems filling operations staff and fleet manager-level positions. These labor shortages point out a huge obstacle for carriers who want to add capacity to deal with economic growth.
I have always believed that this a pay issue as much as anything else. Over-the-road truck drivers lead a difficult life, and I expect to see driver pay increase as carriers try to test higher pricing to make room for more driver compensation. A large-scale U.S. infrastructure initiative could actually make this problem worse. The labor pool for drivers would likely only get smaller. Who wants to go out on the road for three weeks at a time when you can stay home and work construction?
Cargo theft continues to be a problem in the US. FreightWatch reported a total of 194 thefts in the second quarter in the U.S. (45 thefts in April, 66 in May and 83 in June).
Some key statistics provide insight into the depth of the problem. The average loss value per incident during the quarter was $164,594, a 27 percent increase year over year in value despite a 12 percent decrease in volume.
On the rail side of transportation, the Association of American Railroads reported week 30 (week ending July 27, 2013) rail traffic continued its upward intermodal trend. Intermodal traffic was up 1.3 percent in year-over-year comparison, offsetting a 0.5 percent carload decrease.
Kansas City Southern and Norfolk Southern led the way with single-digit intermodal volume increases, and CSX came in third. Union Pacific has been down on lower international volume.
When one excludes coal and grain carload, traffic actually increased 0.9 percent and when considering U.S. traffic only, carloads were up 2.2 percent. The metals, petroleum, and crushed stone segments all showed growth.
Merger and acquisition activity of note: Microsoft bought Blue Horseshoe’s Warehousing for AX and Transportation for AX solutions, while XPO Logistics purchased 3PD, and Duff Brothers Capital purchased Frozen Food Express.