Daily Independent (Ashland, KY)

June 16, 2012

Truckers as leading indicator show stable U.S. growth

By Anna-Louise Jackson and Anthony Feld
Bloomberg News

— Rising truck shipments show the U.S. economic expansion is intact, even amid concerns that a slowdown in retail sales and Europe's sovereign-debt crisis could stall growth.

Two measures of trucking activity signal the industry remains steady and has even "firmed up" since mid-May, according to Ben Hartford, an analyst in Milwaukee with Robert W. Baird & Co. The data complement anecdotal information from carriers that freight demand ended May on a strong note after more weakness than anticipated earlier in the month, he said.

"Trucking trends are reflective of an economic environment that is stable, not deteriorating," Hartford said.

The for-hire truck-tonnage index rose 2.8 percent in April from a year earlier, up from 0.2 percent the prior month, marking 29 months of growth, based on data from the American Trucking Associations. The economy has never contracted without tonnage turning negative first, so the truck figures are a leading indicator, providing the "first signal" of a slump, said Thom Albrecht, an analyst in Richmond, Va., with BB&T Capital Markets.

Another index that tracks the movement of goods between manufacturers and consumers also is a "good barometer" of the economy, said Jonathan Starks, director of transportation analysis at FTR Associates. FTR's index of U.S. truck loadings increased 3 percent to 115.9 in April from a year earlier, the highest since 2008, based on data from the Nashville, Ind.- based transportation-forecasting company.

April's improvement suggests the economy is expanding. "It's not red-hot, but it's not stalling, either," Starks said, adding that annual gains above 5 percent would suggest robust activity. Index growth exceeded 5 percent between July 2010 and March 2011, the data show, while gross domestic product expanded an average 2.9 percent year-over-year in the same period.

Contacts at trucking companies describe a "seasonally stable demand environment," Hartford said. Albrecht agreed, saying two carriers characterized activity in early June as "robust."

These anecdotal "channel checks" are consistent with sentiment reported by Landstar System in its mid-quarter update, Albrecht said. The Jacksonville, Fla.-based trucking company affirmed on May 29 its second-quarter earnings estimate of 71 cents to 76 cents a diluted share. This compares with first-quarter earnings of 57 cents a share.

Both the economy and the operating environment for Landstar are "pretty much as forecasted," moving "in a northerly direction, albeit in a slow and sometimes choppy pace," Chairman and Chief Executive Officer Henry Gerkens said then.

Landstar reiterated its guidance even as U.S. retail sales weakened. A 0.2 percent drop in May matched an April decline that previously was reported as a gain, based on data from the Commerce Department. This prompted some economists, including those at Goldman Sachs, Morgan Stanley and Credit Suisse, to cut forecasts for second-quarter growth.

The sequential declines are "consistent with retailers' broader concerns about consumer demand and validate cautious recent inventory strategies among retail and consumer shippers," Hartford said.

There also are "clouds of global economic uncertainty" hanging over the industry that could cause activity to falter, he added, with the possibility of a Greek exit from the euro area contributing to doubts about the future of Europe's monetary union.

There occasionally have been "head fakes," such as between November 1995 and September 1996, when annual tonnage was negative and the economy didn't enter a recession, Albrecht said. Still, industry data and anecdotal comments from carriers, both of which "have a good track record of signaling downturns or upturns," are "remarkably consistent in demonstrating slow but steady economic growth," he said.

Further, forecasts for FTR's loadings index suggest activity will return steadily to 2007's pre-recession levels by late 2014, Starks said. The index has risen 12 percent from a 16-year low of 103.5 in December 2009, six months after the 18- month slump ended, the data show.

"We probably won't get a new peak for another couple years," Starks said. "But the data is clearly showing that we're also not entering any sort of recessionary environment at the moment."