ST. LOUIS — From both a volume and a pricing perspective, the U.S. freight economy continues to be extraordinarily strong, Cass Information Systems said in its monthly report issued Wednesday.
“The Cass Freight Shipments and Expenditures Indexes are clearly signaling that the U.S. economy, at least for now, is ignoring all of the angst coming out of Washington about the trade wars,” said Donald Broughton, founder and managing partner of Broughton Capital, a deep data driven quantimental economic and equity research firm, and who authored the report. “Despite Wall Street’s concerns about the increased threat of inflation or interest rates hikes, these indexes are displaying accelerating strength on top of increasingly difficult comparisons. Demand is exceeding capacity in most modes of transportation by a significant amount. In turn, pricing power has erupted in those modes to levels that continue to spark overall inflationary concerns in the broader economy.”
The Cass report said the organization does not fear long-term inflationary pressure as technology continues to provide multiple ways to increase asset utilization and price discovery in all parts of the economy, especially in transportation.
“In fact, we are seeing more signs that electronic logging devices initially hurt the capacity/utilization of truckers (particularly small truckers), but many of the truckers most adversely affected are now beginning to get some of the loss in utilization back, especially in the dry van and reefer marketplaces. The flatbed segment of trucking, however, is continuing to struggle with productivity after the adoption of ELDs.”
The report noted that both shipments and expenditures first turned consistently positive 19 months ago.
“The current level of volume and pricing growth is signaling that the U.S. economy is growing, but that level of growth may have reached its short-term expansion limit. The 10.6 percent year-over-year increase in the July index is yet another data point confirming that the strength in the U.S. economy continues,” Broughton wrote. “We are confident that the increased spending on equipment, technology and people will eventually result in increased capacity in most transportation modes. That said, many modes are reporting limited amounts of capacity or even no capacity at any price shippers are willing to pay.”
Cass said the first seven months of 2018 have clearly signaled that, barring a negative “shock event,” 2018 will be a very strong year for transportation and the overall economy. July, June, May, April and March exceeded all levels attained in all months in 2014 (a very strong year), while February was roughly equal to the peak month in 2014 (June 2014 – 1.201 vs. February 2018 – 1.198) which is extraordinary.
Broughton said that the year-over-year percentage change is notable because the freight recovery started in the second half of 2016 (i.e., tougher comparison) and because only when comparisons were weak (i.e., 2009-2010) were the percentage increases so high.
“Said another way, we normally only see such high percentage increases in volume when related to easy comparisons,” he wrote. “That these percentage increases are so strong and strong against tough comparisons, explains why our outlook is so bullish, why capacity is so constrained, and why realized pricing is so strong.”
Cass said consumers were starting to spend, albeit not as much with brick and mortar retailers, noting that millennials are starting to form households in earnest.
“Long derided by critics as ‘wanting to live in their parent’s basement forever,’ we would note that instead they may have simply been doing the same as previous generations,” Cass said. “They are simply marrying later than their parents, who married later than their parents, who married later than their parents. As life expectancy and the percentage of population attaining higher education has increased, so has the age at which they first marry. We should also point out that household formation is an extremely strong driver of consumer spending, and that there are more millennials than baby boomers in the U.S.”
The report said that with the surge in the price of WTI crude back above $45 a barrel in April 2016, the industrial economy’s rate of deceleration first eased and then began a steady improvement. Now with oil back above $67 a barrel, the U.S. oil industry is now fracking new wells in all major shale fields.”
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