Giving Thanks and Checking Mixed Numbers
During this week of Thanksgiving I am thankful for family, friends and all of my associates at Wagner Logistics. Living a grateful life and counting my blessings is what keeps me optimistic about our country despite our many challenges.
We had some positive news last week, with the Federal Reserve reporting that, for the first time since July, factory growth was up in October by 0.4 percent. Durable goods (products with a useful life of at least three years) bounced up 0.5 percent in October. Nondurable goods increased 0.3 percent.
Total industrial production continues to be dragged down by mining, which fell 1.5 percent as oil production and coal continue downward trends. Utilities fell 2.5 percent.
October factory production was up 1.9 percent year over year, which means that companies are gearing up for an improving economy. As inventories bleed off and consumers do their part by spending, we should be setting up for continued slow growth in 2016.
Speaking of spending, single-family home purchases were up 2.4 percent year over year in October and are up 10 percent year to date. Housing prices continue to rise as the inventory of available homes is reduced.
In other good news, the Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.6 percent in October to 124.1 (the year 2010 = 100 as the baseline), following a 0.1 percent decline in September and a 0.1 percent decline in August.
- Here are the 10 measures the Conference Board reviews to develop the index:
- Average weekly hours, manufacturing
- Average weekly initial claims for unemployment insurance
- Manufacturers’ new orders, consumer goods and materials
- ISM® New Orders Index
- Manufacturers' new orders, nondefense capital goods excluding aircraft
- Building permits, new private housing units
- Stock prices, 500 common stocks
- Leading Credit Index™
- Interest rate spread, 10-year Treasury bonds less federal funds
- Average consumer expectations for business conditions
This October gain is the first since June and indicates moderate economic growth over the next three to six months. Barring a terrible winter or “black swan” event, the U.S. is entering 2016 in pretty good shape.
What’s up with retail?
Consumers are spending, but cautiously, based on numbers from the Commerce Department and the National Retail Federation (NRF). Commerce put October retail sales at $447.3 billion, which is up 0.1 percent compared to the same month last year.
The NRF said that its measure of October retail sales is up 3.1 percent annually and up 0.3 percent when seasonally adjusted from September. The NRF measures exclude restaurants, autos and gas stations. The NRF remains bullish for holiday sales (November and December), believing they will grow 3.7 percent compared to last year and that online sales will jump 6 to 8 percent this year.
Wal-Mart Stores seems to have regained footing, reporting that same-store sales increased 1.5 percent in the last quarter and store traffic grew 1.7 percent. Continued investment in e-commerce and smaller stores while revamping the supercenters is paying off for the folks in Bentonville.
Look for other retailers to play catch-up in e-commerce and reduce the number of physical brick-and-mortar locations. It’s not a good time for shopping center developers as stores like Macy’s, Kohl’s and J.C. Penney look to reduce their number of locations.
Retailers need a good holiday season to de-stock their inventories. The Census Bureau recently said that U.S. total inventories and retail stocks grew from August to September. Business inventories rose by $5.1 billion to an annualized 2.5 percent increase for an inventory-to-sales ratio of 1.38 from 1.37 in August.
U.S. retailers increased inventories 0.8 percent from August to September, pushing the retail inventory-to-sales ratio from 1.47 to 1.48. What does this mean? Expect a lot of sales and markdowns by retailers to clear out this backlog of inventory.
The Labor Department reports that U.S. consumer prices are tracking in two directions as prices for services are increasing and prices for products are stagnant. Core prices, which exclude food and energy, rose 1.9 percent in October.
Core goods are affected by the stronger dollar, and overseas weak economies were down 0.7 percent year over year. Core services, which aren’t as affected by international events, were up 2.8 percent in the same time comparison, creating a 3.5 percent gap in prices. Companies making and selling goods are being exposed to deflation.
Those Inventory Numbers Impact Us All
What does all this mean to logistics/transportation providers? Until these inventories come down, we will see:
- A weaker freight market for truckload and intermodal carriers.
- LTL trucking companies will benefit from smaller shipment sizes in restocking.
- Parcel carriers like UPS, FedEx, and USPS will get a boost from the spike in e-commerce sales.
- Ports will see fewer containers as companies have plenty of stock on hand.
- Driver pay will moderate as truckload fleets put the brakes on adding equipment until freight market conditions improve in the spring after inventories are reduced.
In the meantime, freight markets remain soft, with DAT reporting the average spot rate for dry vans fell 2 cents to $1.70 per mile in the week of Nov. 8 through 14. Turkeys must be on the move, as reefers were in demand and the spot rate during this period was $1.92 per mile.
Rail freight continued its downward trend in the week ending Nov. 14, with carloads falling 8.7 percent year over year and intermodal traffic dipping 0.3 percent. Light metal, ores and oil traffic brought down carload loadings.
Combined, rail traffic fell 4.7 percent. All rail traffic in North America fell 1.3 percent in the first 45 weeks of the year when compared to 2014.
One of the biggest cost centers in a supply chain is industrial real estate and the outlook for lower costs is bleak. The Urban Land Institute says that warehouse availability rates are expected to continue to decline through 2016 and 2017 at 9.5 percent vacancy.
Lease rates show increases of 4.9 percent this year and are expected to be 4 percent in 2016. 2017 lease rates are predicted to increase by 3 percent.
Real estate markets are healthy from favorable economic and capital markets, so if you are looking at a new distribution center location or a lease renewal, expect to pay more.
Here At Wagner
At Wagner Logistics we are pleased to simply extend our warmest Thanksgiving greetings and wish you and your family health and peace. Be safe and if you need any logistical support in transportation or warehouse operations, Bring it!
Have a great day,
John Wagner Jr.
About Wagner Logistics