The U.S. economy may be slowing, but domestic shipping is picking up speed, countering recent reports of economic doom while challenging shippers struggling to balance freight demand and transportation costs in the coming months.
The latest Cass Freight Index provides a sign that recovery in the U.S. is still alive and kicking. The Cass index for May showed shipments rising 1.8 percent from April and 2.2 percent year-over-year, despite jitters over the economic outlook.
“The economy is still growing at its very slow rate,” Cass Information Systems said in its index report. “The number of freight shipments has risen at a very steady pace in 2012, but is still below the most recent highpoint in September 2011.”
The pace of growth is certainly slowing. The Commerce Department on May 31 dropped its estimate of U.S. GDP growth for the first quarter from 2.2 percent to 1.9 percent. U.S. GDP expanded at a 3 percent annualized rate in the fourth quarter.
Orders for U.S. factory goods dropped to their lowest point in half a year in April, while the large drop in worker productivity between January and March suggests some manufacturers may have to hire workers to keep pace with demand.
Manufacturing companies — shippers — did expand their payroll by 12,000 jobs in May, even though unemployment edged up to 8.2 percent for the month. Transportation firms added 36,000 jobs, with truckers accounting for 7,300 jobs.
Freight spending by shippers rose even more sharply than shipments in May, increasing 2.2 percent from April and 5.6 percent from a year ago, according to Cass, a sign that truck and intermodal rates are climbing as well as volumes.
For the first five months of 2012, freight spending rose 7.8 percent year-over-year while the number of shipments increased an impressive 8.5 percent, Cass said. Large truckers such as Landstar System report healthy increases in freight volume.
“The freight market is not very strong, but its not in a decline either,” said Satish Jindel, president of transportation research firm SJ Consulting Group in Pittsburgh. May was a “fairly normal” month for the trucking companies he surveys, Jindel said.
But can the trends be sustained? “What looked like a resurgence during this second quarter may fizzle out in the next few months,” Cass said in its reports, especially if a persistent European economic crisis becomes more of a drag on U.S. growth.
“It is nearly impossible to escape the conclusion that we are replaying in some manner the spring-summer slowdowns of the past two years,” Federal Reserve Bank of Atlanta President Dennis Lockhart said in a speech Wednesday.
At the Broward Workshop in South Florida, Lockhart cited the weak housing sector, the contracting public sector and an “uncertainty drag” on confidence as factors slowing the economy, as well as the unfolding economic crisis in Europe.
“I am giving more weight and higher probability to a negative influence on our economy coming from Europe,” Lockhart told local business leaders. He’s not just worried about U.S.-European trade, but the effect a financial crisis would have on global debt markets.
Cass’s assessment of the economy? “Overall, still positive growth, but many ups and downs,” the freight payment company said in its monthly report. In that case, shippers might want to fit some type of shock absorber to their supply chains.