October Sees Freight Dip Along with the Economy

October was a depressed month for freight and the economy in general. The number of shipments and freight expenditures both declined from September, by 3.5 and 2.6 percent, respectively. This marks only the second time this year that both indexes declined in the same month. (Shipment volume in April dropped 3.5 percent, but expenditures fell only 1.6 percent.) The 16-day federal government shutdown is partly to blame for the declines, but prior to the shutdown the economy was already exhibiting signs of a cool down.

The 3.5-percent decline in freight volumes followed two months of strong growth, but is reflective of the weakening state of the overall economy. Shipment volume has already been below corresponding 2012 volumes in six months of this year, and October contributed the seventh month, coming in 2.0 percent below a year ago.
The sharp reduction in the shipment volume in October can be linked to the government shutdown. Although Customs and Homeland Security workers were exempt from the furlough, many freight shipments were delayed because other government agencies were not open to perform necessary inspections or processing. Railroad carloadings declined again in October, dropping 0.7 percent, while intermodal loadings reversed September’s drop and rose 2.5 percent. Truck tonnage rose in September (the month for which the latest data is available from the American Trucking Associations), but spot market load indicators declined sharply in October. U.S. manufacturing output was almost flat in September, with even the automotive sector showing definite signs of slowing. With inventories growing and retail sales and business spending flagging, there has been little reason to restock. In addition, export demand began to stall in August and has just begun to rebound.
October Freight Expenditures
Freight expenditures for October fell 2.6 percent – the largest decrease in 2013. Monthly expenditures have declined only two other times this year; in October they were 6.1 percent higher than at year-end 2012. The decrease in expenditures mirrors the drop in shipments and primarily reflects a change in volume, not a substantial change in rates. Carriers have found rate increases difficult to sustain throughout the year, and October was no exception. Spot market rates softened as the month progressed, and posted loads dropped off.
Overall Picture
The government shutdown due the budget stalemate on Capitol Hill was in Day Three when this report was written last month. Ultimately, the stand-off resulted in a 16-day closure of the federal government. Exact estimates of the impact have not been calculated. The White House estimated that the stand-off cost the U.S. economy $10bn a week, while Moody’s Analytics estimated it closer to $50bn total. Federal government employees lost about $1bn dollars a week in wages and, although a bill was passed to give federal workers retroactive pay, the foregone purchases will in most cases not be made. They represent lost sales to thousands of businesses, especially small businesses. In addition to federal employees being furloughed, many companies (particularly defense contractors and suppliers) also laid off thousands of workers. The Bureau of Labor Statistics reported – belatedly because of the shutdown – that only 148,000 jobs were added to the economy, well shy of the 185,000 we’ve been averaging over the last year. The combined hit to the economy is substantial. Estimates of fourth quarter GDP losses range from 0.3 to 0.9 percent. When the two sides arrived at a settlement in Washington, their agreement only kicked the can down the road. Rather than settling appropriations for the 2014 budget, the result was a continuing resolution that will fund the government through January 15 and suspend the debt ceiling until February 7. This resolution does little to defray the concerns of workers and consumers alike, demonstrated by the plummeting measures of consumer and business confidence in October. Bloomberg’s monthly gauge of consumer expectations indicated a sharp increase in the number of respondents expecting the economy to get worse. In fact, it was the biggest surge since October 2008.

Underwhelming retail sales has resulted in lower expectations for the holiday season. The National Retail Foundation forecasts that the average holiday shopper will spend 2.5 percent less than in 2012, representing the first forecasted decline since the 2008 holiday season. Halloween sales dropped 6 percent this year. Declining sales, mounting inventories, fresh memories of the federal shutdown, and trepidation regarding the January and February federal deadlines are affecting the movement of freight. The Institute for Supply Management reported a 0.4 percent increase in its Purchasing Managers Index (PMI). The PMI Production Index fell 2.9 percent in October. On the positive side, New Orders edged up 0.2 percent and Backlog of Orders rose 4.0 percent, mostly on the strength of a 9.6-percent surge in Export Orders. The conclusion is that the fourth quarter is unlikely to be as strong as initially forecast, with much of the damage already done by the government shutdown and its ripple effects. A pickup in exports will not be strong enough to offset the expected declines elsewhere in the economy. Ongoing concern, both domestically and abroad, over the lack of a long-term resolution to the federal government’s budget and debt ceiling issues is casting a cloud of uncertainty over economic growth for the remainder of this year and the first quarter of 2014.

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