July Truck Tonnage Climbs 3.9%

American Trucking Associations’ tonnage index climbed 3.9% in July, the 20th consecutive year-over-year increase, despite growing uncertainty about the strength of the U.S. economic recovery and freight demand in the months ahead.

However, growth of the seasonally adjusted freight index slowed in July from the brisk 6.5% year-over-year gain in June and was the second-slowest increase since 2.7% in May, ATA reported Aug. 23.

On a month-to-month basis, ATA’s index declined 1.3% to 114 in July from June and now has dropped in three of the past four months on that basis.

“Despite a solid June, our truck tonnage index fits with an economy that is growing very slowly,” said Bob Costello, ATA’s chief economist. “The good news is that tonnage continues to increase on a year-over-year basis, but it is likely that the rate of growth will moderate in the second half of the year.”

The slowing tonnage growth was reflected in the latest round of tepid economic reports. The Commerce Department on Aug. 24 reported a 1.5% drop in orders for capital goods that are used to make other products, the biggest decline in six months.

Reports on home price and mortgage applications last week also showed declines, providing more evidence of tepid overall economic growth, gauged at 1.1% in the second quarter by the Commerce Department.

“Businesses and households are nervous about another recession,” which is showing up in order levels and hiring, Costello told Transport Topics. “Businesses in particular are likely taking a wait-and-see approach before making large investment decisions, putting some downward pressure on tonnage.”

But Costello added that the “downward pressure” doesn’t mean there definitely will be an actual year-over-year tonnage decline during the rest of 2011.

The ATA official said he agreed with executives such as Stephen Russell, CEO of Celadon Group Inc., who said last month that uncertainty about the success of U.S. debt reduction efforts was hurting the economy as a whole.

Another sign of weakness came from the not seasonally adjusted index, based on tonnage actually hauled. That index fell 9% from June to July to 111, exceeding the 5% month-to-month decline in 2010 and also topping the five-year trend that shows a 3.7% decline from June to July.

Still more uncertainty was seen in durable goods orders, excluding aircraft and automobiles. The data, which the Commerce Department released Aug. 24, included declines in orders for machinery, computers and communications equipment.

“It’s going to take time before businesses become comfortable about investing and hiring,” Ryan Sweet, senior economist at Moody’s Analytics Inc. headquartered in West Chester, Pa., told Bloomberg News.

Dell Inc.’s Chief Financial Officer Brian Gladden said on Aug. 16 that “it’s clear that the demand environment is weaker and a bit more uncertain,” which prompted the computer maker to temper its 2011 sales forecast.

One bright spot for trucking was the 11.5% month-to-month in-crease in orders for automobiles and parts, which could fuel an improvement in overall demand along with imports and pre-holiday inventory buildup, Deutsche Bank analyst Justin Yagerman said in an investor note.

Yagerman’s report noted a 0.4% rise in July from June in the Conference Board’s leading economic indicators, saying an LEI increase usually is a sign of growing demand in the months ahead.

“If the economy continues to improve as the LEI Index suggests, companies will shift their focus toward restocking undersupplied inventories ahead of peak spending season later in the year,” his report said.

However, Yagerman also noted that “uncertainty over economic growth may contain freight demand near-term [as] retailers begin to reevaluate their order plans ahead of peak shipping season.”

Other industry watchers also were cautious about the second-half outlook.

“U.S. political turmoil has impacted confidence, an issue that is starting to manifest materially in business growth,” Dahlman Rose & Co. analyst Jason Seidl said in a report.

But Seidl also detected hopeful signs. “Some companies in the transportation sector are not seeing the current doom and gloom that is plaguing financial markets,” while others are struggling, he said.

Wolfe Trahan & Co. analyst Ed Wolfe sounded a similar theme.

“Demand generally doesn’t feel terrible, and the data we track isn’t signaling a significant double-dip recession yet,” he wrote Aug. 23. “There are also some reasons to be hopeful, as lower fuel prices should help consumer demand.”

His third-quarter survey of shippers that spend $25 billion annually on transportation reflected the tempered expectations, as well.

That survey found that, on average, freight customers in all transport modes now expect to move 2.9% more cargo over the next 12 months, which is less than the 3.3% projection made in a prior survey.