ST. LOUIS — Both the number of shipments and freight transportation expenditures continued a downward slide in December, falling 4.9 percent and 2.7 percent respectively, Cass Information Systems has reported.
The declines are not unusual for December, but they capped off a second quarter of decline, Cass said, adding that in retrospect, 2015 did not even begin to reach the heights reached in 2014.
By the end of 2015, both shipment volume and expenditures fell back to 2013 levels. Expenditures for freight transportation were 5.2 percent lower than at the end of 2014 and shipment volume was down 3.7 percent from the same period.
Freight shipment volume declined 4.9 percent in December. However, this year-end drop is not as big as the more than 6.2 percent declines in December 2013 and 2014, the Cass report showed.
Holiday season retail store sales were strong, but did not meet expectations in 2015. Online sales blew past last year’s record and more than made up for lower brick-and-mortar sales. The discounting started early again this year, muddying Black Friday sales figures, and consumers waited until goods were marked down further before buying. The holiday season was especially a boon for small parcel carriers.
The Department of Commerce reported a 1.1 percent drop in retail trade in December and an 8.2 percent rise in sales for food services and drinking establishments. Consumers remained cautious about extending any new credit for holiday purchases, waiting for the best bargains.
The Cass report noted that retailers had hoped the extra cash generated by still-falling gas prices would boost sales, but instead consumers increased their visits to restaurants and similar businesses. The Institute of Supply Management’s (ISM) PMI fell again for the second month and the index level has fallen below 50, indicating that the manufacturing sector is contracting. The Production, New Orders and Backlog of Orders sub-indexes are also below 50 and are contracting. However, the New Orders sub-index did increase 0.6
Despite favorable employment/unemployment reports and moderate growth in household wealth and income, consumers are still very conservative. There was little expansion in credit and higher savings rates. In general, consumer sentiments have remained in the 90s most of the year, but trailed downward in the third and fourth quarter. Companies are laying off seasonal workers and many are even going beyond that.
Macy’s just announced a downsizing that will affect close to 5,000 employees and will see the closing of some of their flagship stores. Expect unemployment to rise again in the first quarter of 2016.
High inventories are a problem for retailers, wholesalers and manufacturers, so a majority of goods were discounted.
The Federal Reserve raised interest rates in December, which puts more pressure on firms holding inventory. Inventory carrying costs rise with interest rates, and the money tied up in inventory that is not moving becomes a liability. And this may get worse, as the Fed has discussed plans to raise rates several times in the coming year. Low warehouse vacancy rates are pushing the price of warehouse space. In short, the nation’s bloated inventories are becoming a problem.
Export demand was way off in 2015 because of global economic conditions and the relative strength of the U.S. dollar, which makes our goods more expensive. Global conditions are slowly stabilizing, so expect a strengthening in U.S. exports, excluding oil, in 2016. However, the U.S. dollar shows little sign of falling off in the near term.
The oil industry took a particularly hard hit as U.S. oil is no longer competitive with the falling oil prices. This has resulted in a significant drop in fuel and drilling supplies carried by railroads and trucks that were involved in moving pipes, sand, water and waste for fracking mines. The low price of natural gas has further exacerbated the problem as more electric plants convert to natural gas. Railroads and barges have seen their coal shipments erode, and several mines have closed because of a lack of demand. Energy markets will remain a wildcard in 2016.
With manufacturing slowing, inventories high, companies rationalizing employees and a six-month slide in freight volume and expenditures, 2016 will get off to a slow start, Cass said.
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