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Signs are afloat that freight economy is slowly recovering
Friday, 04 September 2009 00:00
Upswing in consumer spending and sustained growth needed for freight transportation to fully recover, say analysts

WALTHAM, Mass.—Some recent economic indicators point to the possibility of the recession coming to an end, but before that is made official, more needs to happen, according to freight transportation and logistics experts.

In the last two weeks there have been an abundance of signs signifying positive economic activity. Some examples include:

  • the Institute of Supply Management’s manufacturing index—the PMI—which covers the overall health of the manufacturing sector, rose four percentage points to 52.9 percent, marking the first time the index has climbed above 50 since the recession began—the 50 percent mark is typically viewed as the dividing line between “growth” and “contraction”;
  • the Department of Commerce’s recent report that durable goods orders were up by its largest amount in two years, with a 4.9 percent bump, that has seen the increase up in three of the last four months;
  • the Cass Information Systems Freight Index, which measures freight expenditures and payables, was up 1.3 percent in August compared to July.

Although these signs are encouraging, it by no means reflects a healthy and prosperous economy or freight transportation market. And they can easily be quelled by some less-than-rosy indicators, including: sluggish back-to-school retail sales, which typically signal increased consumer spending activity; improving but still down truck and railroad volumes; and low import totals at various U.S.-based ports, among others.

While the overall economic picture is blurred, one industry analyst told LM there are some things to be optimistic about.

“In general, things are positive, especially the ISM index which suggests manufacturing is picking back up,” said Eric Starks, president of freight transportation forecasting firm FTR Associates. “We have been looking for stabilization in the economy and have seen things stabilize in the last three months as the economy has hit the bottom.”

Starks added there are a lot of “positives” out there, with evidence that things may have slowly started to turn the corner. But he cautioned that it is premature to determine if enough has happened, adding that the dent the recession had made in the economy requires a lot to happen over the next six-to-nine months, as well as the fact that recent positive economic signs have yet to translate into a rebound in freight demand.

Stifel Nicolaus analyst John Larkin commented that some of the sequential uptick occurring with freight volumes portends too much optimism at this point, explaining they are more seasonally-based and creating a “temporary hope” that things are better over September and October.

For things to truly improve, Larkin said, consumer spending needs to recover. But as things stand, consumers still face too many obstacles, such as high unemployment, increased savings to off-set lost funds due to wage cuts and the recession.

“Consumers are coming up on Labor Day and are still in the bunker waiting for the economy to feel better,” said Larkin., 9/04/2009