Several conflicting political and economic news from super economic powers and others are in headlines. On the global front, there is good news and bad political news such as encouraging news from the Korean peninsula and sad news of chemical warfare in the Syrian front. Business environment continues to be positive in the US. A Commerce Department report showed new orders for U.S. factory-made goods in February increased nearly 1.2% from the month before, nearly erasing January’s 1.3% decline. When compared to the same time a year earlier, February’s gain was still impressive, rising 7.9%, boosted in large part to a spike in civilian aircraft orders. There were solid gains in orders for electrical equipment, machinery and primary metals, which offset a slip in computer-related electronics. New orders and shipments of long-lasting manufactured durable goods moved higher, as new orders rebounded from a decline in January. Nondurable goods orders declined 0.5% after rising 1% in January. Commerce Department also revised downward orders for nondefense capital goods excluding aircraft, an indicator of business investment, to show a 1.4% rise, down from a first reported 1.8% improvement. Shipments of these core-capital good increased 1.4% in February, the same as reported a month earlier. The rise in both new orders and shipments of core capital goods bodes well for equipment spending when it comes to upcoming first quarter U.S. gross domestic product numbers, but we believe it will be less of a boost than the double-digit gains seen in the last half of 2017. The overall order rise and especially the order rise for capital goods point to manufacturing momentum. The number of U.S. non-farm jobs added in March moderated while trucking added the most jobs in recent memory, according to a new Labor Department report. Overall, 103,000 jobs were added for the month, far short of analysts’ expectations of a 185,000 gain, and well below February’s jump of 326,000 new jobs. All this kept the nation’s unemployment rate at a 17-year low of 4.1%, where it’s been for six straight months. In for-hire trucking, there were 6.700 job additions in March, following the 6,000 added during February. The wider transportation and warehousing sector added 9,800 jobs in March, due not just to trucking, as the couriers and messengers, and warehousing and storage categories also reported solid gains. March for-hire trucking employment totaled nearly 1.48 million– that’s up 23,000 jobs from the same time a year earlier. Employment also grew in manufacturing, health care, and mining. Manufacturing jobs rose by 22,000, with all the gain in the durable goods component. Year over year, manufacturing has added 232,000 jobs. More robust employment gains were also expected to be reflected in the unemployment rate dropping to 4.0% from February’s rate of 4.1% though last report indicated that this rate remained unchanged. The current unemployment rate is still below the Federal Reserve’s assumed long-run range of 4.3% to 4.7%. The likelihood of labor markets operating beyond capacity is possibly starting to limit firms’ ability to find new workers, particularly after outsized gains in recent months. It’s worth noting new tariffs were imposed by the Trump administration on Chinese made goods, with China responding with a similar move against U.S. produced items. This could lead to an escalating trade war between the world’s largest two economies and could also slow down worldwide economic growth. Ultimately, this tit-for-tat strategy is to the detriment of both economies. The hope is that tariffs are being used as a tactical approach to force a dialogue regarding the continuous violation of intellectual property rights of U.S. firms that operate in China. The conciliatory tone of Chinese authorities and the willingness of the U.S. administration to continue with dialogue are positive signs that a further escalation of a trade war can be averted.
March was a huge month only the fourth time on record but second time this quarter that “medium- and heavy-duty combined orders exceeded 70,000 units, as activity in both the medium- and heavy-duty vehicle markets remained strong. North American Classes 5-8 net orders in March rose 55 percent year-over-year, 11 percent above February’s order intake. North American Class 8 orders for March were 46,300 units, making Q1 the largest quarter of truck orders in history. March orders for Class 8 were 15 percent above February and up 103 percent year-over-year. Orders exceeded expectations as demand for trucks are at record levels. Fleets are attempting to add capacity as fast as possible in a dynamic market. Some OEMs had exceptional order months as fleets scramble to lock in order slots for this year. North American Class 8 orders for the past twelve months have now totaled 357,000 units. Capacity is extremely tight and expected to remain this way for months. Fleets need more trucks to handle huge freight demand and continue to order trucks at record setting rates. Freight growth continues to climb at a rapid rate. The vibrant economy is pushing dry van and refrigerated van loads to elevated levels and renewed oil drilling is generating a tremendous amount of flatbed freight. Current status of industry:
- Domestic heavy-duty truck markets experienced a huge first quarter in 2018.
- Medium-duty vehicles Classes 6 and 7 sales in February 2018 were over 10,200 units. Medium-duty sales strength continues like in Class 8 market, for which sales were 16,687 units in February. A good Winter quarter in every aspect.
- Sales for February 2018: Class 7 were 4,411, Class 6 with 5,819 and Class 3, 4 and 5 were 29,446 units.
- In February 2018, heavy-duty Class 8 sales in the US were 16,687 units. Freightliner on top with 6,310 units, Peterbilt with 3,017 units followed by International with 2,244. Kenworth moved down in rank with 2,100 units, Volvo 1,973 units, Mack 1,194 units, and Western Star 379 trucks.
- Leasing companies and large fleets are showing strength with orders while medium and small size fleets are also growing well.
- Despite couple of casualties from automotive autonomous program the overall development is way too promising to slowdown. Autonomous vehicle developer Waymo is testing self-driving Class 8 trucks carrying freight bound for Google data centers in Atlanta, Georgia. This program will allow Waymo to further develop its autonomous truck technology and integrate it into the operations of shippers and carriers, as well as the network of factories, distribution centers, ports and terminals served by carriers.
- Trailer orders have averaged 46,000 units per month in the last quarter. Barring any economic shock, freight growth and equipment demand will be strong into 2019. Although capacity utilization is expected to ease later this year, it will remain at historically high levels.
- Spot truckload freight volume and rates declined seasonally in February, typically the slowest month for freight, but this was the second-strongest February in 20 years. The national average spot van rate was $2.13 per mile in February, down 11 cents compared to January but 52 cents higher than February 2017.
- Aftermarket parts growth for truck are strong as commodity costs such as steel after rising are dropping slightly while the dollar continues to weaken slightly. Aftermarket parts sale has steadily changed from local distributors to regional dealers
Industry Watch: US Economic growth in the first quarter of 2018 remained strong and overall global economy has followed. Global economy continues to show strength with growth in most of the developed and developing countries. Significant uncertainty still lies ahead in 2018 as trade issues with NAFTA and China get clarified. US economy and growth rate is expected to encounter strong growth with recent tax reforms. We must wait and see how new policies get implemented such as new tariffs, reduction in taxes, repatriation of the dollar, globalization, defense, healthcare, and infrastructure. In heavy and medium-duty trucking while current build rates are getting constrained it will meet expected demands with dropping inventories. Lower taxes and energy costs will continue to contribute to growth as economy improves further. In the next 5 years we expect market share of Class 6 and 8 to increase while Class 7 will reduce slightly.