Truck Tonnage Increases 4.1% in July; Experts Predict Slower Growth

This story appears in the Aug. 27 print edition of Transport Topics.

Truck tonnage rose 4.1% in July, extending the streak of consecutive year-over-year increases to 32, American Trucking Associations reported last week.

ATA’s freight index, which stands at 118.8, posted the largest increase since February. On a month-to-month basis, the index was unchanged from June.

The July results topped the forecasts of analysts such as Peter Nesvold of Jefferies & Co., who predicted 2% to 3% year-to-year growth pace because of a sluggish economy.

“July’s reading reflects an economy that has lost some steam but hasn’t stalled,” ATA Chief Economist Bob Costello said. “There has been some better economic news recently, but I continue to believe we will see some deceleration in tonnage during the second half of the year.”

Costello’s better economic news included the Labor Department’s Aug. 3 announcement that 163,000 jobs were added in July and the 0.8% increase in retail sales report by the Commerce Department on Aug. 14.

Costello kept his tonnage outlook for 2012 in the 3% to 3.5% range he predicted last month. Earlier this year, the upper end of his forecast was as much as 3.9%.

So far this year, truck tonnage has increased 3.7% over the same months of 2011.

From August 2011 through December, tonnage rose at least 4.9%, topped off by a 10.5% increase in December that pushed ATA’s index to a record 124.2.

The ATA index that is not seasonally adjusted and measures freight actually hauled during July also increased on a year-over-year basis.

The July index was 119.4, a 7% improvement over July 2011. However, the non-seasonally adjusted tonnage figure declined 2.8% in July from June.

Commentary from Costello, Nesvold and others reflected mixed economic indicators in line with lowered freight expectations.

One of the braking forces on tonnage will be a slowdown in new factory orders, Costello said, which will reduce manufacturing output and tonnage as a result.

Higher inventories are a worry as well, he said.

“Unintended gains in inventories will hit trucking negatively as the supply chain works off stocks,” Costello said.

Nesvold’s report said July tonnage looked better because it was compared with last July, when tonnage gained 4.2% over the same month in 2010, which was the second-slowest rate of that year.

August freight volume will be flat, at best, and may be slightly below last year, Nesvold added, basing his comment on commentary from fleets.

“Let’s just say the economy is OK,” said James Meil, chief economist for Eaton Corp. “It’s not terrible. It’s just not terribly good.”

Meil cited, for example, the latest purchasing managers’ index released by the Institute of Supply Management, whose latest reading was a sign of “very, very slow growth.”

Auto and light truck sales, another generator of truck tonnage, was “flat-lining” at around 14 million units in June and July, after a period of stronger growth.

Meil also cited improvement in the housing market, including higher new and existing home sales and an increase in the median sales price.

“That is an important freight generator,” he said. “That is a positive for trucking.”

Another analyst report, done before ATA’s tonnage was issued, sounded a similar tone.

“Freight volumes and anecdotes remain consistently inconsistent, which is what an economy growing at 1.5% delivers,” BB&T Capital Markets analyst Thom Albrecht wrote on Aug. 16.

“While it is too early to make an aggressive call about fall freight volumes, we are modestly encouraged that the coming weeks will see a modest, seasonal uptick in freight volumes,” Albrecht wrote, citing stronger demand for steel and increased port activity in Los Angeles.

Justin Yagerman, a Deutsche Bank analyst, also noted modest growth both in a University of Michigan index that measures consumer sentiment and the Conference Board’s modest 0.4% increase in leading economic indicators.

“One challenge is that we have an election coming,” Eaton’s Meil said. “There are a lot of very scary headlines about the election and the ‘fiscal cliff’ that could follow.”

The “fiscal cliff” is a reference to federal budget cuts and possible increases in payroll and income taxes if there is no action by Congress to mitigate the cuts and preserve the lower rates that are set to expire at the end of the year.

“Businesses including truck dealers and truck fleets might be backing away from being aggressive in their business commitments,” Meil said.

“They look at the U.S. and global economy and see that it’s a pretty opaque picture,” Meil said. “Households are doing the same.”