The Freight Economist
September 2024
Executive summary
Monthly economic and market update
The US Federal Reserve lowered rates by 50 bps
for the first time since
March 2020.
U.S. economy
Federal funds
rate
Income and spending
Labor market
Freight demand
Imports
Truck
tonnage
Manufacturing
Retail
sales
Container imports declined by 3% in August but still showed robust growth of 12.9% compared to the same month last year. Consumer goods from China continued to lead the way in imports. However, the early peak season appears to be tapering off, as imports fell in August despite expectations of a seasonal increase of 2.9%.
Imports
What does it mean for truck tonnage?
Retail sales
Key data points and commentary
Trucking
volume
Rail volume
and rates
Geographic
trends
Routing guide trends
Routing guide trends
Geographic trends
Average m/m and y/y van spot rate index by origin regions – August
Source: DAT
Trucking volume
The Cass Freight Shipments Index rose slightly in August, but remained 1.9% below its year-earlier level. Similarly, the American Trucking Associations (ATA) Truck Tonnage Index rose 0.3% in July after declining 1.8% in June, but was 0.9% lower than its year-earlier level. ATA attributed July’s increase to stronger imports and an uptick in retail sales and factory output compared to last year.
Rail volume and rates
Intermodal costs declined 0.5% in August, as measured by the Producer Price Index (PPI). Compared to the same period last year, intermodal prices remained relatively flat. Despite a recent surge in imports that boosted intermodal volumes along key corridors, intermodal prices continued to face downward pressure from the adjacent truckload sector, where contract prices have been sluggish. Meanwhile, carload rates remained unchanged in August but were 4.4% higher than their year-earlier level.
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.
Routing guide performance remained unchanged in August. Shippers continued to benefit from high tender acceptance and route guide compliance rates, which remained near historical peaks, at 92% and 95% respectively. Shippers are still shielded from routing guide failures, as the expected added cost if the primary carrier rejects a tender is only 1.3% higher to the shipper.
The U.S. Federal Reserve has lowered the Effective Federal Funds Rate by 50 basis points for the first time since the first quarter of 2020. However, the impact of these rate cuts on freight demand is unlikely to be felt in 2024. For instance, demand for durable goods, which is closely linked to home sales, typically lags changes in the Federal Funds rate by several months. Lower interest rates lead to decreased mortgage rates, which stimulate home sales and subsequently increase purchases of durable goods.
If the Federal Reserve can successfully achieve a soft landing, lower interest rates should alleviate pressures on the housing and manufacturing sectors in 2025 and 2026, ultimately providing a much-anticipated boost to freight demand.
Executive
summary
U.S.
economy
Freight
demand
Freight
supply
Federal funds rate
Average m/m and y/y van spot rate index by destination regions – August
Source: DAT
In August, as produce demand decreased, outbound dry van spot rates declined in the Southeast (-7.2%) and Southwest (-2.3%). However, rates increased by 4.1% in the Northeast, consistent with seasonal trends. Year-over-year, spot rates remained relatively unchanged across the Northeast, Midwest, and Southeast regions. Notably, the West experienced a substantial 10.4% increase, and the Southwest saw a 7.1% rise. This growth can be attributed, in part, to a surge in imports from Asia and Mexico, which stimulated freight demand in these areas.
Key data
points
Shipper and carrier insights
Retail and food service sales saw a slight uptick in August, increasing by just 0.1%. Online shopping provided the main boost, while traditional brick-and-mortar sales excluding gas stations and cars rose only 0.2%. However, even with this modest growth, brick-and-mortar sales remained 3.3% higher than the previous year.
Given durable goods have experienced price deflation over the past year, and nondurable goods have seen only minor inflation, consumer spending on goods likely surpassed the August 2023 level, even when adjusted for inflation. This aligns with July's data from the Bureau of Economic Analysis, which showed a 2.3% year-over-year increase in consumer spending on goods.
Inflation
Retail and food service sales climbed 1% in July, primarily boosted by a 3.6% surge in motor vehicle and parts dealers. Excluding this sector, sales edged up 0.4% from the previous month and were 3.1% higher compared to the same time last year. Importantly, this sales growth outpaced the rate of inflation for goods, which actually decreased over the past 12 months.
2/2
Truckload demand rose slightly by 0.1% in July, as a surge in consumer and wholesale-driven demand was offset by a decline in manufacturing-driven demand. While demand from manufacturing and wholesale, which accounts for the majority of truckload activity, only marginally exceeded its year-ago level, consumer- and import-driven demand significantly surpassed last year's levels.
1/2
2/2
The Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, has exhibited signs of moderating to a more desirable level. Coupled with ongoing softening in the labor market, this has led to the first interest rate cut by 50 basis points since the first quarter of 2020. While the immediate impact of these rate reductions may be limited, a successful soft landing could alleviate pressures on the housing and manufacturing sectors in 2025 and 2026—, ultimately stimulating long-awaited growth in freight demand.
1/3
Intermodal shipments surged by 5.4% in August, outpacing the August 2023 average by a substantial 8%. This growth was primarily fueled by increased imports and an early peak import season. In contrast, rail shipments experienced a more modest 3.2% uptick in August, but were only 0.3% higher compared to the same period last year.
1/2
2/2
Shipper and carrier insights
The unemployment rate fell slightly to 4.2% in August, alleviating some concerns of an imminent recession. However, the U.S. economy only added 142,000 jobs in August, and job gains were revised downward by 86,000 for the prior two months.
Further slowing signs came from the Job Openings and Labor Turnover Survey (JOLTS), which showed that job openings continued to fall in July, declining 3% month-over-month and 12.9% year-over-year. Job openings were only 9% higher than the comparable 2019 levels, while total hires for July were 6% lower.
Labor market
The Federal Reserve's favored measure of inflation, the Personal Consumption Expenditures (PCE) Price Index, has shown signs of moderating to a more acceptable level. The index increased by only 2.5% compared to the previous year, primarily due to deflation in durable goods and slower inflation in nondurable goods. Services prices, excluding energy and housing, continued to rise slightly faster than their historical average. When excluding volatile food and energy prices, as well as housing (often considered a lagging indicator), the overall inflation rate was just 2% year-over-year.
Inflation
Real disposable income continued to inch forward at a sluggish pace.
Real disposable income increased slightly in July (0.1%) after a similar increase in June, but remains 6% below its pre-pandemic long-term trend due to inflation and economic slowdown. The mismatch between income (1.1% year-over-year) and spending growth (2.7% year-over-year) is causing consumers to dip into their savings. In July, the savings rate fell to its lowest level since June 2022 (2.9%), well below the pre-pandemic levels of 7% to 8%.
Income and spending
Manufacturing production and new orders continued to slow down.
The US manufacturing economy contracted for the fifth consecutive month according to the ISM PMI, which registered 47.2 in August. The indices of production, new orders, and backlogs pointed to lower output and a weaker demand outlook. The employment index remained below 50, indicating ongoing layoffs in manufacturing.
For more insights, we provide a deep dive into the manufacturing sector in the “Shipper and Carrier Insights” Section of this report.
Manufacturing
The ISM report also highlighted widespread concerns among manufacturers about declining demand and order levels. Respondents across various sectors expressed pessimism about the near-term outlook.
Manufacturing
2/2
Freight supply
Spot rates
Carrier
population
Supply and demand indices
Driver
employment
Both our truckload demand and supply indices remained unchanged in July. Nevertheless, demand surpassed its year-ago level by 1.6%, while supply remained unchanged compared to last year. The correlation between the difference in supply and demand and truckload spot rates is well-established. This gap has narrowed only marginally since last year, suggesting that the market is only marginally tighter than it was a year ago.
Truckload supply and demand indices
The trucking industry remains in a holding pattern, with carriers persisting despite incurring losses in anticipation of a tightening market. Recent data aligns with previous trends, except for a minor increase in long-haul truckload employment in July. Year-to-date, trucking employment fell 8.3K and was 2.8% lower than its peak in late 2022.
While year-on-year comparisons (which indicate unchanged employment compared to August 2023) are skewed by Yellow's bankruptcy, a consistent year-over-year rise in long-haul truckload jobs (for two consecutive months) suggests a slowing rate of capacity reduction. Given these factors and the absence of major demand shifts, a strong market recovery appears improbable.
Surprisingly, the average weekly hours worked by production and nonsupervisory employees in long-distance trucking reached their lowest point since the early 2000s, surpassing the lows observed during the COVID pandemic and the Great Financial Crisis. This suggests that a significant amount of capacity is currently unused due to insufficient demand.
Driver employment
Dry van spot rates declined 3 cents per mile in August, following seasonal trends. However, rates remained 3% higher than the same month last year. Given seasonality has been the primary market driver in recent months, we expect spot rates to remain slightly above the comparable 2023 levels for the remainder of the year.
Compared to linehaul rates, all-in rates have been decreasing at a faster pace. This is due to a 9-week decline in diesel prices, which reached their lowest level since October 2021 and are 22% lower than the same time last year.
Spot rates
Market conditions
Market
conditions
Dry van spot rates declined by 3 cents per mile in August but remained 3% higher than the same month last year. As seasonality has been the primary market driver in recent months, we anticipate spot rates to remain marginally above their 2023 counterparts for the remainder of the year.
3/3
The issuance and revocation of new carrier authorities appear to be returning to normal levels after a period of significant fluctuations. Following a surge in new authorities between 2021 and 2022, a similar surge in revocations occurred in 2023 and 2024. In total, the influx of new carriers increased the carrier population by over 125,000, while subsequent exits reduced this number by almost 34,000. In August, the FMCSA authorized more new carriers than the net number of revocations for the third time since September 2022.
Carrier population
A Glimpse of the Manufacturing Economy
Although real consumer spending on goods reached a record high in August, the U.S. manufacturing sector remained stagnant. This discrepancy between consumer spending and manufacturing growth can be attributed to several factors. For instance, imports have surged to historically high levels, comparable to those in 2021 and 2022. Moreover, retailers and wholesalers continued to deplete their excessively high inventory levels from the previous two years.
The manufacturing slowdown has resulted in job cuts. Manufacturing employment, specifically production and nonsupervisory employees, declined by 0.4% year-over-year in August and was 0.9% below its 2022 peak. The sharp decrease in weekly hours worked suggests that further job losses are likely.
Click to jump to section
The trucking industry continues to tread water, with carriers persevering despite incurring losses in anticipation of a tightening market. Recent data largely aligns with historical trends, save for a slight uptick in long-haul truckload employment in July. Year-to-date, trucking employment decreased by 8,300 jobs and was 2.8% below its peak in late 2022. However, the rate of carrier exits remains slower than anticipated, preventing a substantial rebound in freight rates.
2/3
The U.S. labor market continues to show signs of softness.
The manufacturing sector is more vulnerable to economic downturns than other sectors in the economy, such as services and retail. During the Great Financial Crisis, manufacturing saw a more severe downturn, falling by 20% compared to a 4% contraction in GDP.
Durable goods manufacturing, such as automobiles and metals, is particularly vulnerable to economic downturns. Consumer goods like food, beverages, and pharma tend to be less affected.
In addition to broader economic tailwinds, several factors affect manufacturing demand, which vary by sector. Below, we explore the challenges facing different manufacturing sectors in the US.
Industrial production of machinery, primary metals, and fabricated metals has remained relatively flat or slightly declined over the past year. A recovery in these sectors seems unlikely in the near future, as orders and shipments of core capital goods—a key indicator of manufacturing activity—have also stagnated.
Orders for core capital goods, which are nondefense capital goods excluding aircraft, are considered an early indicator of manufacturing activity. Weak orders and shipments in this sector suggest that a broader economic recovery may be delayed.
Seasonal trends are the primary driver of market movements
After a relatively slow August, freight demand typically starts to increase in September. However, southern markets like Florida, Arizona, and Georgia may still experience softer conditions as the produce season comes to a close. By December, the freight market in most northern U.S. regions experiences significant tightening as commercial drivers take time off for the holiday season and retailers strive to replenish their inventories.
The Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, has exhibited signs of moderating to a more desirable level. Coupled with ongoing softening in the labor market, this has led to the first interest rate cut by 50 basis points since the first quarter of 2020. While the immediate impact of these rate reductions may be limited, a successful soft landing could alleviate pressures on the housing and manufacturing sectors in 2025 and 2026—ultimately stimulating long-awaited growth in freight demand.
1/3
Paper and
plastics
Industrial equipment
Nondurable consumer goods
Automotive
Durable
consumer goods
Industrial equipment and supplies
Automotive
Auto manufacturing has been one of the bright spots in the economy over the past year, driven by pent-up demand and a shortage of vehicles at dealerships. While production rose to meet demand, the market is starting to show signs of saturation, with inventories gradually normalizing and potential glut looming on the wholesale side.
Paper and plastics
Paper and plastics are highly used in the packaging industry, which has been affected by the recent slowdown in food spending after the economy re-opened. In addition, the demand for paper products was already on a downward trajectory due to factors such as digitalization, adoption of alternatives (plastics), and growth of e-commerce. The pandemic further accelerated this decline. Moreover, a surge in downstream inventories led to a slowdown in manufacturers’ demand.
Nondurable consumer goods
Demand for food consumed at home fell from its pandemic highs as the economy re-opened, normalizing back to its pre-pandemic levels. Demand for other consumer goods (such as apparel) continues to be pressured by external competition, slowing consumer demand, and high downstream inventories.
Durable consumer goods
Durable consumer goods such as appliances, furniture, and wood products are affected by the ongoing housing recession. New home sales remain below the 2019 levels, and about 30% below the pandemic peak. Similarly, housing starts are at their lowest level since the beginning of the housing recession, 32% below the 2022 peak.
