The Freight Economist
October 2023
Executive summary
Monthly economic and market update
The trucking industry added 8.8K jobs in September after shedding 25.2K jobs in August. It is likely that carriers hired thousands of ex-Yellow employees. In the long-distance truckload sector, employment continued to decline for the 3rd month in a row, and turned negative year-over-year for the first time since March 2021.
Trucking employment
rose by 8.8K in September as carriers sought after
laid-off Yellow
employees.
US economy
Inflation and
labor market
Manufacturing
Consumer spending on goods
Wholesale
activity
Freight market
Supply /
demand indices
Spot rates
Freight
demand
Freight
supply
Income and savings
The goods economy is showing significant signs of recovery. Data from August and September indicated an increase in wholesalers’ sales, consumer spending on goods, and manufacturing orders of core capital equipment. The ISM Purchasing Managers’ Index continued to rise for the 3rd consecutive month, approaching 50.0, the threshold between expansion and contraction.
The US manufacturing economy contracted for the 11th month in a row, according to the ISM PMI. However, this index rose for the third month in a row, indicating that the rate of change is improving. At 49.0, this index was only 1 percentage point below the contraction threshold, and the highest it has been since November 2022. The index of production rose above 50 for the first time since May, and the index of new orders rose to 49.2, its highest level since October 2022.
Manufacturing
Retail and food services sales increased by 0.6% in August on a seasonally adjusted basis, and were 2.5% higher y/y. However, most of the increase was driven by gasoline stations sales, as gas prices surged by 24 cents per gallon on average. If we exclude gasoline stations, sales were up only 0.2%.
This still counts as positive growth, especially that commodity prices (excluding food and energy) fell by 0.1% in August, according to the Consumer Price Index. This implies that the real growth in retail sales was about 0.3% in August. In addition, sales excluding gasoline were still 3.7% higher than the same time last year, while prices were only 0.4% higher, indicating 3.3% real growth over the last year.
Consumer spending on goods
The gap between truckload demand and supply is closing, indicating that the market might begin to tighten soon. Truckload demand rose by 0.5% in August, driven by higher wholesale sales and robust consumer spending. Demand was 0.2% higher y/y for the second month in a row after 8 months of negative comps. On the other hand, supply declined by 0.4%, driven by lower employment in the long-distance truckload sector, and was only 0.3% higher y/y.
Supply / demand indices
Spot rates
Freight demand indicators were mixed in August, with a significant decrease in new home sales and housing starts, and an increase in imports and wholesale activity.
Freight demand
(1) US Bureau of Economic Analysis, Real Personal Consumption Expenditures (August, 2023).
(2) Federal Reserve’s Industrial Production: Manufacturing Index (August, 2023)
(3) US Census Bureau data on Housing Starts and Building Permits (August, 2023)
(4) US Census Bureau data on wholesalers’ sales, excluding petroleum, lumber, metals, and farm products (August, 2023), adjusted for inflation using the PPI: Final demand goods.
(5) US Bureau of Economic Analysis Personal Income and Outlays data (August, 2023)
(6) US Census Bureau data on manufacturing orders: nondefense capital goods excluding aircraft (August, 2023), adjusted using the Producer Price Index: Final Demand - Private Capital Equipment.
(7) Descartes (August, 2023, seasonally adjusted using Uber Freight’s data).
New trucking authorities and revocations both fell in September. While the Federal Motor Carrier Safety Administration (FMCSA) authorized 5,163 new trucking carriers, about 6,400 lost their operating authorities. This implies a net reduction in the carrier population of 1,235 carriers. September’s decrease was the 6th consecutive decline, and the 11th in the last 12 months. Over the last year, the carrier population has declined by about 18,000.
Freight supply
Key data points and commentary
Trucking
volume
Rail
volume
Geographic
trends
Routing guide trends
Dry van spot and contract rates rose in September. However, this was mostly due to rising diesel prices. Linehaul rates (excluding fuel) continued to fall. September saw a significant increase in dry van spot volume after stagnating for more than a year. The dry van first tender acceptance ratio fell slightly for the 4th consecutive month, but that of flatbed increased.
Routing guide trends
Geographic trends
Average m/m and y/y van spot rate index by origin regions – September
Trucking volume
The Cass Freight Shipments Index rose by 1.9% in August, or 0.8% on a seasonally adjusted basis, but was still 10.9% lower y/y. August’s increase was the first since January 2023. While truckload volumes were flat to slightly down year-over-year, this index was held back by weaker LTL and intermodal volumes, which fell significantly over the last year.
Rail volume
Intermodal volumes rose by 5.7% in August, but were still 7.9% lower y/y. Meanwhile, carload volumes rose by 1.9% in August, but were 2.3% lower than the same time last year. The outlook for intermodal demand looks better in the second half of the year, especially as containerized imports rise gradually and shift back from the East Coast to the West Coast, in part due to the Panama Canal disruptions.
Mazen’s work focuses on analyzing the freight transportation landscape, and producing short- and long-term forecasts based on supply and demand dynamics. He is also a research affiliate with the Intelligent Transportation Systems (ITS) Lab at MIT, where he completed his PhD in 2019. His work falls at the intersection of ITS, economic modeling, and analytics.
mdanaf@uberfreight.com
By Mazen Danaf, Senior Economist and Applied Scientist, Uber Freight
Featuring insights and contributions from Uber Freight leadership,
technologists and market specialists.
The growth in income was not enough to match the rate of inflation. Disposable personal income rose by 0.2% in August. Therefore, real (inflation adjusted) income fell by 0.2%.
The decline in real income did not prevent consumers from spending more in August. Real spending increased by 0.1% m/m, led by services. Therefore, less money went into consumers’ savings accounts; the personal saving rate fell from 4.1% in July to 3.9% in August.
Despite declining in income and savings, year-over-year comparisons remained positive. Consumers’ real disposable incomes were 3.7% higher than a year earlier, a sign that income growth has outpaced price inflation in the last 12 months. In addition, consumers saved 0.7% more of their income than they did a year earlier.
Dry van spot and contract rates rose in September. However, this was mostly due to rising diesel prices. Linehaul rates (excluding fuel) continued to fall. September saw a significant increase in dry van spot volume after stagnating for more than a year. The dry van first tender acceptance ratio fell slightly for the 4th consecutive month, but that of flatbed increased.
Inflation made a comeback in August. Consumer prices rose sharply, led by higher energy prices. The consumer price index (CPI) rose by 0.6% on a seasonally adjusted basis, and was 3.7% higher y/y. This remains well above the Fed’s stated target of 2.0%. The index for gasoline was the largest contributor to inflation, accounting for over half of the increase.
If we exclude the more volatile food and energy sectors, prices rose by 4.3% y/y, which was the lowest rate of inflation since September 2021. Core goods prices (which exclude food and energy) fell by 0.1%, and were only 0.4% higher y/y.
However, inflation remains high in the services sector. The lagging index for shelter remains the largest contributor to the y/y increase, after rising for 40 consecutive months. Excluding shelter, services prices have only increased 3.1% over the last year.
Spot rates (including fuel) rose slightly in September, but that was not enough to compensate for the increase in diesel prices. Therefore, weakness in linehaul spot rates, which exclude a hypothetical fuel surcharge, persisted through September, as diesel prices continued to rise. Dry van spot rates averaged about $1.68/mi in September, only 1 cent per mile higher than August’s average.
Low spot rates do not necessarily mean that the market is softening, as DAT’s load-to-truck ratio (LTR) averaged 2.78 in September, slightly below August’s average, but higher than all of the 6 months prior to August. The higher LTR was mostly driven by lower equipment posts, while load posts have been stable. This indicates that spot market capacity, which is heavy on owner-operators and small fleets, has been declining.
Executive
Summary
US
Economy
Freight
Market
Shipper & Carrier Recommendations
Inflation
The US economy added 336K jobs in September, almost double the market expectations. September’s increase was the highest since January. Job gains occurred in leisure and hospitality; government; health care; professional, scientific, and technical services; and social assistance, according to the Bureau of Labor Statistics. This followed a 7.7% increase in job openings in August, according to data from the Labor Turnover Survey (JOLTS) survey.
Despite the surprising growth in payroll jobs, the unemployment rate rose slightly, from 3.7% in August to 3.8% in September. However, it remained near historically low levels.
While job growth was robust, wage inflation continued to moderate. Average hourly wages rose only by 0.2% in September, and 4.2% over the last 12 months This was the lowest year-over-year growth since June 2020.
US labor market
Data from the Federal Reserve point in the same direction. Manufacturing output increased by only 0.1% in August according to the US Federal Reserve Industrial Production Index, but was 0.6% lower than the same time last year. The August reading was held back by a drop of 5 percent in the output of motor vehicles and parts; factory output elsewhere rose 0.6%.
Data from the US Census shows that manufacturers’ shipments (measured in Dollars) rose by 1.3% in August. However, the increase was mostly driven by higher petroleum prices. If we exclude petroleum and coal products, August’s increase was only 0.4%.
On the positive side, the increase in shipments was driven by durable goods, and particularly machinery. Shipments of core capital goods, a leading indicator of manufacturing activity, rose by 0.7% in August, and orders for these goods rose by 0.9%.
Real spending on goods fell by 0.2% in August, and was 2.1% higher than a year earlier. Consumers purchased fewer amounts of durable (-0.3%) and nondurable (-0.1%) goods. The largest contributor to the decrease was new motor vehicles. However, spending in both categories (durable and nondurable goods) was higher than a year earlier, by 4% and 1.1% respectively.
It is worth noting that consumers spent 0.6% more on goods in August than they did in July (in nominal terms). However, the spike in price inflation, especially in energy prices, resulted in less real (inflation adjusted) spending.
Consumer spending on goods
Wholesalers continue to cut their inventories as sales recover.
Sales in the wholesale sector rose by 1.8% in August, while inventories fell by 0.1%. The increase was driven by various sectors, such as automotive, furniture, lumber and construction materials, professional and commercial equipment, drugs, groceries, alcohol, and farm products. A few sectors saw a decrease in real sales, such as household appliances, paper products, and petroleum.
If we adjust for inflation and exclude bulk products (such as petroleum, minerals, lumber, construction products, and farm products), sales were up 0.7% m/m, but flat y/y. On the other hand, inventories in the same sectors have declined by 0.3% m/m, and 0.3% y/y.
Over the last year, inventory restocking was driven by the automotive and machinery sectors, where there is significant pent-up demand. If we exclude these two sectors (to focus on core truckload products), we find that inventories have plummeted by 5.2% over the last year. In the remaining sectors, the inventories/sales ratio fell from 1.40 to 1.30 over the last 9 months.
Wholesale activity
Driver employment
Carrier population
Net orders of Class 8 tractors rose by 10% in August despite the persisting soft market. However, they were 5.3% lower y/y. Truck sales in North America also rose by 4.9% m/m, and were 3.3% higher than a year earlier.
So far, this year has seen a higher number of sales and a lower number of net orders compared to 2022. Net orders averaged 19K units/month in the first 8 months of 2023, significantly below the 2022 average of 22.7K units/month. Meanwhile, sales averaged 28.7 units/month, which is significantly above the 2022 average of 22.2K units/month.
As supply chain constraints eased or orders stagnated, the truck production backlog fell sharply over the last two years, from a cycle high of 293K in September 2021 to only 158K in August 2023. Similarly, the order lead time (defined as the backlog/build ratio) fell to 5.6 months, close to the levels seen in mid 2019 and early 2020.
Equipment
For-hire carriers added 8.8K employees in September (+0.6% m/m). This followed a 25.2K decline in August, because of the Yellow bankruptcy. It is likely that many of Yellow’s employees have found jobs with other LTL carriers, and possibly in other sub-sectors in the trucking industry, such as truckload or specialized freight.
Data for these sub-sectors lags by one month and is only available until August. August’s data shows that carriers in the long-distance truckload sector have reduced their headcount by about 2.5K employees (-0.5% m/m). Employment in this sector turned negative year-over-year, for the first time since March 2021.
However, long-distance truckload employment likely increased in September, as these carriers might have absorbed Yellow’s excess capacity.
Average m/m and y/y van spot rate index by destination regions – September
Dry van spot rates (excluding fuel) rose for outbound shipments from the Northeast and Midwest, and fell for outbound shipments from the West, Southwest, and Southeast. Inbound rates to the Southwest and Southeast rose, while those headed to the West, Midwest, and Northeast fell compared to August. On a year-over-year basis, rates ranged between -10% and -18% across all regions.
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Nondefense capital goods excluding aircraft.
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Key Data
Points