Over the past few months, FTR’s Hotline articles for HDT have focused primarily on the consumer sector, including freight risks associated with inflation and inventory. While we have reason to be concerned about the potential for lower consumer spending, we have yet to see any data indicating that spending is truly down.
Some analysts interpreted the cooling in spot market metrics for dry and refrigerated pickup trucks as a sign that consumer spending is down. However, this cooling appears to be primarily related to a resumption of large truckload capacity, which serves to shift volumes into the contract market and away from the spot market.
The freight associated with the industrial sector is not without risks, but the industrial activity seems to have a much higher floor than the consumer sector. Industrial production and manufacturing output are strong. In March, the Federal Reserve’s industrial production index was at its highest level on record, and this data dates back to 1919. Manufacturing output is the strongest since August 2008.
Of course, strong production is no guarantee of continued strength. After all, August 2008 was the month before the financial meltdown that led to the worst period of the Great Recession. Manufacturing output plunged nearly 16% to its low point in June 2009.
Unlike the situation in 2008, however, the manufacturing sector is facing huge pent-up demand due to supply chain and labor issues. If you’ve tried buying new trucks in the past year, you’ve probably found that it takes a lot longer than usual. Everyone knows about the global shortage of semiconductors which drastically reduces the production of cars, light trucks, SUVs and, of course, heavy and medium trucks.
Despite some recent improvements, automotive and parts retailer inventories are still more than 27% below pre-pandemic levels, even though retail sales of vehicles and parts are about 29% above pre-pandemic levels. Even if sales fall, automakers will still have to push production as far as semiconductor supply will allow for at least the rest of this year and likely longer.
While supply chain issues for vehicle production may be easier to isolate than in the rest of manufacturing, the entire industry is experiencing the same basic problem: higher demand than production can meet. . Manufacturing production excluding motor vehicles and parts was 4.6% higher than February 2020, seasonally adjusted, but new orders for manufactured goods in the last month were 19% higher than February 2020.
Some of this manufacturing demand would obviously disappear if the wider economy shut down, but a significant portion of this production would be needed to replace worn or obsolete equipment. The manufacturing sector in the broad sense is reminiscent of commercial vehicles. Demand for additional trucks and trailers may decline, but the industry still needs to replace older equipment.
For more information, visit www.FTRintel.com/HDT or call FTR at 888-988-1699. This article originally appeared in the May 2022 issue of Heavy Duty Trucking.