Hot Housing News and the State of Logistics

John Wagner Jr provides figures, statistics ad his opinions on a variety of industries including housing, manufacturing and the supply chain

July kicks off with positive news in home sales numbers as the number of contracts to buy existing homes in May rose significantly. This is a strong signal that the residential real estate market is on a rebound. The National Association of Realtors said that its pending home sales index increased 6.1 percent, the biggest increase since April 2010. Low interest rates are driving people to buy rather than rent.

The Commerce Department chimed in too, saying that 504,000 (seasonally adjusted) new single-family homes were sold in May, which is 18.6 percent above May 2013 sales. The median price of homes bought in May was $282,000, a 7 percent increase over 2013.

The Institute for Supply Management’s (ISM) manufacturing index showed that factories are taking a breather from their hot expansion pace. The index fell to 62.6 in June from 65.5 in May. Any reading of 50 or more signals expansion.

The Census Bureau reported that new orders for durable goods (products lasting at least three years) fell 1 percent in May. When defense spending is taken out of the equation, orders were actually up 0.6 percent.

The Census Bureau also reported that retail sales rose in May for the fourth straight month, with a 0.3 percent increase. For the last four months, sales are up a total of 3.2 percent. Winners include auto sales, garden supplies and building materials. Grocery chains, electronics, apparel and appliances were less fortunate. Compared with a year ago retail sales are up a total of 4.3 percent, so overall we are still in good growth territory.

Along the Supply Chain

The U.S. supply chain and logistics industry continues to rebound, according to the 25th annual "State of Logistics Report" recently released by the Council of Supply Chain Management Professionals (CSCMP). U.S. business logistics costs increased to $1.39 trillion in 2013, a 2.3 percent increase from 2012.

The report tracks and measures all costs associated with moving products through the supply chain and concludes that logistics costs as a percentage of GDP declined for the second year in a row, at 8.2 percent. The transportation industry grew only 2 percent, with all modes experiencing modest revenue growth.

Trucking led the way in business logistics cost at $657 billion for a 2 percent annual increase, and railroads came in second at $74 billion. This is not to say 2013 wasn’t a great year for railroads, as they experienced a 9.2 percent growth in traffic. Carloadings were up 8.1 percent while intermodal jumped 10.6 percent.

I see another sign of a strong transportation sector in trailer sales. May orders were at the highest monthly level for May since 1998, according to ACT Research, with 22,308 net trailers ordered from U.S. manufacturers. That compares to 14,655 ordered in May 2013, so you can see the capacity currently on order. Year-to-date new orders are ahead of last year by 45.2 percent.

Dry van orders are up 64 percent year to date and reefers are up 38 percent, so companies are actively replacing trailers while adding equipment.

The American Trucking Associations reported that truck tonnage was up 3.4 percent in May, showing broad increases in all categories of trucking. The ATA seasonally adjusted index reading hit 129.7, close to the 131.0 record set last November. Month over month the index was up 1 percent over April.

Spot market freight rates – that is freight that isn’t moving under contract – remain high, driven by the driver shortage and anecdotal evidence that shippers are pulling as much import freight as they can from Los Angeles and Long Beach in case of a strike at the ports.

The International Longshore and Warehouse Union contract expired July 1 but the union has agreed to negotiate past the deadline. That hasn’t kept companies from going through strike preparations in anticipation of a disruption. So far, negotiations are reported as positive.

Cass Information Services’ truckload cost index showed increases continuing, with May up 5.8 percent. Costs were also up 5.7 percent in April and 6 percent in March, so you can see the trend line. Because 70 percent of transportation contracts are negotiated in the first four months of the year, we are now seeing those agreements taking effect with significant increases to shippers.

The Cass report also shows intermodal costs increased 2.6 percent in May. I believe this is a result of railroads not wanting to leave money on the table by keeping increases just below those of the truckload companies.

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