Second Quarter Economic Growth Driven by Consumption
RedStone Resource
June 30, 2023
Inside This Edition
Inventories Still Elevated in Latest Data Snapshot
Current data shows 65.1% of the nation’s product-moving sectors are in an overstock situation relative to the decade prior to the pandemic. Using the inventory-to-sales-ratios for specific sub-sectors in the economy, approximately 11.3% are chronically understocked and these sectors cannot get their supply chains back in cycle.
Truckload Spot Rate Showing Late June Activity Slowly Improving
DAT reported through its Trendlines source that load-to-truck ratios were slightly better between the weeks of June 19th and June 12th. There was a 5.6% increase in the number of loads looking for trucks largely due to a 4.5% reduction in spot capacity during that time.
New Durable Orders to Keep Freight Shipment Demand Stable
Freight volumes in certain sectors of the economy continue to be robust. The rail sector is reporting automotive shipments up 13.3% YTD vs the same period in 2022 and overall rail carload activity is 0.7% higher. New orders for autos according to the Census Bureau’s Durable Goods report showed that automotive new orders were up 9.7% year-over-year through May.
ECONOMIC BRIEFING
Second Quarter Economic Growth Driven by Consumption; Good for Supply Chain Activity
Two reports released at the end of June show that consumer spending is still holding steady and could help deplete inventories sufficiently enough to spur new demand, new orders for manufactured goods, and broader economic activity. The last revision for first quarter GDP was lifted to 2% from its prior 1.3% reported growth rate. The surprise in growth rates were largely due to an increase in consumer spending, US exports of energy, and growth in inventories.
For the second quarter, despite prior forecasts for a dip in economic growth, the second quarter is currently trending at 2.2% growth according to the Atlanta Federal Reserve. These readings are accumulated throughout the quarter based on weekly economic releases and thus far, economic conditions are much better than expected.
This signals that the rest of the year could be interesting. Many recession forecasts have been pushed further back and into 2024 largely due to continued interest rate hikes by the Federal Reserve. Eventually, it will slow down economic growth (which is its intent to get inflation from its current 4.6% annual rate to the Fed’s target rate of 2%).
Inventories Still Elevated in Latest Data Snapshot
One of the key factors for volumes in the national supply chain is the role of inventories and the risk of inventory overstocks. Current data shows 65.1% of the nation’s product-moving sectors are in an overstock situation relative to the decade prior to the pandemic. Using the inventory-to-sales-ratios for specific sub-sectors in the economy, approximately 11.3% are chronically understocked and these sectors cannot get their supply chains back in cycle. Chemical wholesalers and drug wholesalers are those having the most difficulties in keeping up with demand.
Another 23.7% of the US is in a balanced state. Order replenishment is constant and steady, and inventories are low enough that new sales at the retail or wholesale level typically generate orders for new products that stretch upstream throughout the supply chain, generating demand for raw materials, component parts, energy, and labor. Sectors in this condition include food and beverage, apparel, furniture, computers, and paper wholesalers.
Obviously, too many sectors are still sitting “heavy” with inventory relative to their historical operating levels. This is good for warehousing businesses but if those inventories can be depleted either prior to the peak or shortly after, freight volume activity will pick up pace as companies work to replenish inventories. This would boost global manufacturing activity and lift global economic activity.
TRANSPORTATION BRIEFING
Truckload Spot Rate Showing Late June Activity Slowly Improving
Several measures in the US truckload spot market are showing some slight improvement through late June. DAT reported through its Trendlines source that load-to-truck ratios were slightly better between the weeks of June 19th and June 12th. There was a 5.6% increase in the number of loads looking for trucks largely due to a 4.5% reduction in spot capacity during that time.
Driver capacity is interesting at this time. Some pockets of the country are obviously going through summer harvest season and the construction sector is surging of late. This is the top competitor for CDL drivers and demand across both residential and non-residential sectors is much better than expected. Although this might not be enough to offset broader sluggish freight environments, it did help push up van spot rates in the latest week by 0.8%. As full-month June data is released, whether this is a solid trend or just a weekly anomaly will be better understood. But there have also been some signs that some back-to-school volumes are starting to flow (normal seasonality) as retailers get ready for the fall season.
New Durable Orders to Keep Freight Shipment Demand Stable
Freight volumes in certain sectors of the economy continue to be robust. The rail sector is reporting automotive shipments up 13.3% YTD vs the same period in 2022 and overall rail carload activity is 0.7% higher. New orders for autos according to the Census Bureau’s Durable Goods report showed that automotive new orders were up 9.7% year-over-year through May.
Other durable goods sectors are showing similar strength on a year-over-year basis. Among those are machinery (+2.3%), computers (+17.9%), electrical equipment (7.0%), nondefense aircraft (94.6%), and defense aircraft (12.1%). Defense spending is ratcheting up and orders for defense capital goods overall were up 26.1% year-over-year (small arms and ordnance, missiles, space vehicles, ships and boats, and search/navigation equipment).
The durable goods sector is important to the freight industry because it connects thousands of suppliers both foreign and domestic, and demand in this sector will keep inventories flowing and freight volumes stable through what might otherwise be a broad-based slowdown in economic activity.
