Politics aside, the economy improves

Another week and another political convention. As for the economy there is probably too much emphasis placed on the role of the President.

The President gets the credit or blame, that is the way it goes; the two drivers of the economy from the governmental standpoint are monetary and fiscal policy. The President only has an indirect influence over either of these. Monetary policy is the job of the Federal Reserve and they are independent within the government.                             
Speaking of the economy, let us review the recent numbers. 
Manufactured capital goods rising slowly 
In June, we saw new orders for U.S. manufactured capital goods rising less than expected amid weak demand for machinery. This would suggest an ongoing downturn in business spending despite rising consumer spending in retail and housing. 
The Commerce Department said non-defense capital goods orders excluding aircraft increased 0.2 percent last month after decreasing 0.5 percent in May. These capital goods orders are a measure of business investment. 
The Federal Reserve Bank acknowledged this weakness in their comments as they decided to hold the line on interest rate over concerns about inflation. 
Overall orders for durable goods, items ranging from coffee pots to airplanes, dropped 4.0 percent last month, the biggest drop since August 2014, after declining 2.8 percent in May. 
Other contributing factors include the energy sector being squeezed for profits and the presidential election. Uncertainty breeds cautious spending habits. With corporate profits down, do not expect business spending to improve any time soon. 
In June, orders for electrical equipment, appliances and components increased 0.8 percent, but orders for machinery dipped 0.1 percent and primary metals dropped 1.3 percent. Computers and electronic products orders declined 2.2 percent, the biggest fall since April 2015. 
Orders for transportation equipment slumped 10.5 percent. 
Home sales headed north 
The National Association of Realtors (NAR) showed contracts to purchase previously owned homes rose 0.2 percent in June after falling 3.7 percent in May. 
homeTotal completed transactions for existing home sales climbed 1.1 percent. This includes single-family homes, condos and townhomes. Year over year in June, sales are up 3 percent and are at their highest annual pace since February 2007. 
The largest segment is single-family homes, which came in with a 0.8 percent jump in sales. 
The Commerce Department said June housing starts increased 4.8 percent. Despite the June improvement, the level is down 2 percent from 2015. 
Manufacturing on the rise 
The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) said its reading rose to 52.9 in July following a June measure at 51.3 for the fastest growth since November last year. A reading above 50 indicates expansion while below 50 shows contraction. 
Contributing to strong sales growth were new product launches and favorable economic conditions in the U.S. 
Manufacturing accounts for about 12 percent of the economy. 
The Conference Board also reported on its Leading Economic Index for the U.S. that looks six months into the future. Their measure increased 0.3 percent in June after a 0.2 percent decline in May. The index consists of 10 components, including stock prices, manufacturing levels, home construction and other items. 
Consumers are doing their part 
The U.S. Commerce Department reported a 0.6 percent jump in retail sales in June from the previous month. Americans bought automobiles (+ 0.1 percent) and building supplies (+ 3.9 percent) with 11 of 13 categories reporting gains. 
E-commerce sales grew at their fastest pace increasing 14.2 percent from a year ago. 
The Commerce Department also reported that U.S. business inventories rose more than anticipated in May. The 0.2 percent increase followed a 0.1 percent gain in April. Retail inventories excluding autos increased 0.4 percent in May after a 0.2 percent drop in May. 
Inflation finally takes hold 
The increase in the Consumer Price Index (CPI) puts the annual inflation rate at 1 percent. The “core inflation” rate, which takes out food and energy prices, also rose 0.2 percent in June, the same gain for the past three months. For the past year, the “core CPI” has increased 2.3 percent. 
This worth noting as the Federal Reserve has been saying that 2 percent is their inflation target so a Fed rate increase may be looming in September. 
Industrial Real Estate continues to rise 
The world’s biggest warehouse owner is Prologis and they recently reported that record occupancy is driving up lease rates. Vacancy rates are below 5 percent in most cities. 
Lease renewal rent in the U.S. is up 23.5 percent from a year ago according to the firm. 
Another property report comes from CBRE saying that in the 57 major U.S. markets it tracks, 37 experienced declines in availability in the second quarter. Only 13 markets saw an increase in availability as speculative construction delivered new buildings. 
A slow trucking market, same ole song… 
Let us review numbers from some of the leading indexes: 
The Truckstop.com Market Demand Index (MDI) was down 0.9 points from the previous week. The MDI is a measure of relative truck demand in the spot market. It compares load availability to truck availability. 
The MDI for total equipment decreased 0.9 points in the latest week to 12.8, a decrease of 6.9 percent. Compared to last year the MDI is up 2.6 points, or 25.9 percent. Over the last 4 weeks, it has averaged a decrease of 0.6 points. 
Load Availability for total equipment on Truckstop.com decreased 6.5 percent in the latest week to an index value of 68.6. Compared to last year Availability is up 7.1 percent. Over the last 4 weeks, availability has averaged a decrease of 4.56 percent. 
American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index dropped by 1.5 percent in June, following a nearly 3 percent gain in May. The index equaled 137.2, which was down from 139.3 in May. 
The Cass Freight Index fell 4.3 percent year-over-year in June, but improved 1.7 percent from the May report. The year-over-year performance, despite the decline, still was an improvement over the 5.8 percent drop reported for May compared to 2015. “Lackluster trucking volumes and continued weakness in rail traffic [down 7% year-over-year] weighed on the Cass Freight Shipment Index,” said a report from Deutsche Bank analyst Robert Salmon. Weakness in the index persisted despite a rise in spot market freight on load boards. 
The Cass Truckload Linehaul Index fell another 1.8 percent year-over-year. After falling 2.3 percent and 1.2 percent in April and May. This represents  four consecutive months of year-over-year declines. 
DAT Solutions reports that spot truckload freight rates switched patterns over the week ending July 16th. This follows seasonal highs hit by vans and reefers and a decline in flatbeds, as overall cargo volume was lower than anticipated. 
The number of available loads rose just 7 percent for the week. Well below the 20 percent expected rise following the holiday-shortened week before. 
The van rate declined 4 cents to $1.66 per mile, but that is 4 cents higher than the June average. This happened as truck posts on the DAT network increased 37 percent week-over-week causing load-to truck ratios to drop for all equipment types. Vans fell 26 percent to 2.6 available loads per truck. The number of van-load posts gained 3 percent and truck posts rose 38 percent as outbound van rates declined in major markets. The highest outbound regional rates all posted declines over the past week, falling between 2 cents and 8 cents per mile. 
Look for continued downward pressure on trucking rates for the remainder of the year. 
At the railroad… 
  • The Cass Intermodal Index fell another 1.5 percent year-over-year in June, representing 18 consecutive months of year-over-year declines. Its reading of 121.1 also represents a 4.3percent drop in June from May and is at its lowest level since January 2011. 
The Cass Intermodal Price Index is a measure of market fluctuations in per-mile U.S. domestic intermodal costs that includes all costs associated with the move, such as linehaul, fuel and accessorials. 
  • The Association of American Railroads (AAR) said that intermodal freight in the second quarter fell 5.5 percent for the largest year-over-year decline since late 2009. 
Total intermodal shipments by U.S. railroads fell to 3.37 million from 3.57 million for the 13-week period ending July 2. 
The AAR reported that United States rail carload and intermodal volumes again saw declines for the week ending July 16. Carloads were down 5.4 percent and that of the 10 carload commodity groups only 3 increased including grain, chemicals, and miscellaneous carloads. 
  • The Intermodal Association of North America (IANA) reports that through the first six months of 2016 trailers were down 26.5 percent, domestic containers were up 4.8 percent, ISO containers were down 3.3 percent, and total volumes were off 2.3 percent annually at 8,622,625 units handled. 
At Wagner Logistics 
Wagner has never been busier as we wrap up a solid July with several projects underway. 
Our transportation group continues to add new customers through offering a high level of service and competitive pricing. We are continually improving the use of our transportation management system and adding customers who utilize EDI to transact business. The team from top to bottom believes in customer service and execution. 
On the warehousing side of the business, we will be adding one new distribution center per month in third quarter. At Wagner, we have a real competency in startup planning and execution due to the strong team we have assembled. Once the warehouse is up and running, we continue to provide excellent customer service, which leads to a strong record of renewals.  
With 70 years of experience in logistics, I hope you will reach out to Wagner with any projects or RFPs you may thinking about for 2017. As we say every day, Bring It!
Have a great day, 
John Wagner Jr. 
About Wagner Logistics
Wagner Logistics is a leading supply chain management provider offering distribution center, fulfillment and transportation services across the United States.  Current offices include Kalamazoo MI, Charlotte NC, Jacksonville FL, Cleveland OH, Pine Bluff AR, Omaha NE, Dallas TX, Clinton IA, Kansas City MO and KS. Wagner combines high-tech tools with high-touch product pampering to ensure that inventory is where it needs to be, when it’s needed, in the condition customers expect. From product displays to complex fulfillment to vertical supply chains for fragile products, we want to tackle your biggest challenges. Bring it!
Have a great day,
John Wagner Jr.
About Wagner Logistics
Wagner Logistics has been honored 15 years in a row by Inbound Logistics as a Top 100 3PL provider, we offer dedicated warehousing, transportation management, packaging and assembly operations across the United States with over 3,000,000 sq. ft. Current offices include Jacksonville FL, Cleveland OH, Pine Bluff AR, Dallas, TX, Omaha, NE, Clinton, IA, Kalamazoo, MI, Edgerton, KS, and Kansas City MO and KS. We provide genuine customer service to our customers and our superior onboarding process will make your customer’s transition seamless. We work tirelessly to find innovative solutions to reduce supply chain costs while increasing your speed-to-market with our award winning technology. 
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