The U.S. economy continues to get incrementally better, writes analyst Donald Broughton in the latest Cass Freight Index Report.
“Throughout the U.S. economy, we are continuing to see a growing number of data points suggesting that the economy continues to get incrementally better,” he said.
The September 2017 shipments index exceeded that of 2015 and 2016. Shipments were up 3.2 percent over last year and expenditures were up 4.6 percent over the year prior.
The total amount spent on freight, or the Cass Freight Expenditures Index, posted a “blow-out” 9.7 percent increase in August, then a modest 4.6 percent increase in September. But that is “still respectable and indicative of an economy that is continuing to expand,” noted Broughton, founder and managing partner of Broughton Capital, an economic and equity research firm.
The report said shipments turned positive 10 months ago, while expenditures turned positive nine months ago.
The 3.2 percent year-over-year increase in the September Cass Shipments Index is yet another data point which confirms that the first positive indication in October 2016 was a change in trend.
In fact, it now looks as if the October 2016 Cass Shipments Index, which broke a string of 20 months in negative territory, was one of the first indications that a recovery in freight had begun, the report said.
A year-over-year stacked chart highlights that the September 2017 shipments index exceeded 2015 and 2016, signaling continued recovery. Although still slightly shy of 2013 and 2014 levels, both of these strong levels were achieved during an extraordinarily strong freight market overall and before the industrial recession, which started in December of 2014, had begun.
Although less positive than May and June, the September year-over-year percentage change looks less encouraging because the freight recovery started in the second half of 2016.
Some of this increase in expenditures is because fuel prices have mostly increased over the last nine months. However, there are some improvements in the pricing power of truckers and intermodal shippers, which bodes well for the trucking industry and the overall economy.
Moreover, the Truckload Linehaul Index, which measures linehaul rates but doesn’t include fuel, rose 4.3 percent year-over-year in September.
As noted in previous Cass reports, flatbed rates continue to gain momentum from the hurricanes.
Also driven by the hurricanes that struck Houston and parts of Florida, the DAT Dry Van Weekly Barometer is indicating stronger demand and tighter capacity. This is because the hurricanes displaced equipment, businesses and housing, leading to significant recovery and rebuild efforts in which trucking plays a major part.
Consumers are starting to spend more, but most of that is not in stores but with internet-based orders.
Another positive economic indicator is that the industrial economy, which had been sinking, is showing “modest improvement,” the Cass report stated, led by fracking of drilled, uncompleted wells in fields with lower marginal production costs.
In other words, “the overall freight recession, which began in March 2015, appears to be over and, more importantly, freight seems to be gaining momentum in most segments,” Broughton said.
Expenditures (or the total amount spent on freight) turned positive for the first time in 22 months in January 2017, albeit against an easy comparison.
Not since 2011 — when the economy was still climbing out of the recession — had this index been so low.
The Cass Expenditures Index in January 2016 was the worst in five years, as demand had weakened and crude oil had fallen below $30 a barrel. Although February and March of 2016 were also weak, they were not nearly as weak as January 2016 and hence a slightly tougher comparison. Since fuel surcharges are included in the Expenditures Index, fuel was a negative bias in the data last year.