Collapse In Trucking And PMI An Ominous Sign For The Economy

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by: Robert Kientz
Summary

Class-8 truck orders collapse again.

DHL reports shipping is down. While easy to blame the trade war, I believe that is a symptom of governments protecting their already ailing economies.

US manufacturing is slumping. So is most of the rest of the world, as the visuals from Bloomberg indicate.

Orders for Class 8 trucks, those used to haul goods around our economy, are visibly collapsing. According to FTR Transportation Intelligence, sales for July fell 81% YoY to 9800 units. The market is taking a wait-and-see approach before ordering new trucks, signalling uncertainty over near-term economic growth.

Class 8 Trucking Orders Source: Wolfstreet.com

Shipping is Down in 2019

How much is actually being shipped? Cass Information Systems, which tracks North American freight volumes and expenditures, has an interesting chart with regards to freight volumes.

Cass Freight Index Source: Cass Information Systems

2019 has seen a lower volume of shipments than 2018, and the overall amount starting turning down at about the same time of the year. If shipments are trending down, then it signals the economy is cooling. But we need other confirming factors to determine if this is more than a seasonal change.

DHL Shipments Falling

DHL is reporting a freight slump for both the US and China, slumping sharply since March of this year.

DHL Trade Slump Source: South China Morning Post

The report indicates that the trade war is affecting trade between the nations, and that policy may not be having its desired effects.

“The declining outlook for US exports indicates that, so far, the US is missing its goal of strengthening its export economy with a harsher trade course against China,” the report said.

Having both China and the US in a slump may indicate more than the trade war, however. Both economies may be slowing down, and the trade war is more than likely a response from the governments protecting their economies.

Large Trucking Company Goes Bankrupt

Four weeks ago, Freightwaves reported that a large trucking company, LME, abruptly shut its doors. LME was a shipper based in Minnesota, operating throughout the Midwest. LME had 30 shipping terminals with interline agreements across the US. LME had emerged from the structure of another failed shipper that closed its doors in 2016, having missed payments to workers.

Rising trucking rates had been starting to squeeze manufacturers, like P&G (NYSE:PG) and many other household names.

The problem is widespread across the consumer landscape: Coca-Cola Co., PepsiCo Inc. and restaurant operators such as Yum! Brands Inc. are also being affected, according to recent quarterly reports. It’s also spreading to rail, where freight costs are set to increase above the rate of inflation, according to Bloomberg Intelligence analyst Lee Klaskow.

Those companies were calling for stabilization of trucking costs, which may be occurring now. While truckload linehaul rates have risen steadily since the last recession, 2019 has begun to see a strong softening in the sector.

Truckload Linehaul Rates Source: Cass Information Systems

US Manufacturing is Slumping

The manufacturers may be getting their wish on lower trucking rates, but not for the reasons they wanted. The US PMI is slumping sharply and indicates that purchasing managers are not bullish.

US PMI Slumping Source: Trading Economics

Trading Economics reports that US manufacturing growth is the slowest since the financial crisis.

The IHS Markit US Manufacturing PMI was revised slightly higher to 50.4 in July 2019 from a preliminary estimate of 50.0 and compared to June's 50.6. Still, the latest reading indicated the slowest overall expansion in the manufacturing sector since the height of the financial crisis in September 2009.

What could be the source of the slowing demand for goods? Probably the slumping consumer who has more debt and less cash to work with than at any time since the last recession.

World PMI Turning Down

Bloomberg has a really nice visual on the slumping world economy with its Global PMI Tracker. I clipped a few screenshots here but I highly encourage you to review all of the data. It is clear that production expectations are trending down almost everywhere.

Global and Americas Source: Bloomberg

European PMI Source: Bloomberg

Asia Pacific PMI Source: Bloomberg

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.