While some economic indicators paint an optimistic picture for recovery, supply chain and freight transportation industry experts maintain it will be a while before the recession truly abates.
On the optimistic front are: the Bureau of Economic Analysis’s (BEA) recent release on the second quarter’s 1.0 percent GDP decline, ahead of the first quarter’s 6.4 percent loss; the BEA also reported that real exports of goods and services were down 7.0 percent on the second quarter, compared to 29.9 percent in the first quarter; the Institute of Supply Management’s PMI (formerly known as the Purchasing Managers Index) hit 48.9 in July, representing the seventh consecutive month of growth (an index of 50 or higher typically means the economy is not in decline); the Commerce Department’s report that orders for U.S. durable goods—except for automobiles and aircraft—were up 1.1 percent in June, the biggest gain in three months; and the Cass Information Systems Freight Index down 15.3 percent in July compared to 20 percent and 21.4 percent dips in June and May, respectively.
But despite these signs, there are other data points that suggest the economy is still stuck in neutral and remains at “the bottom.” Among these data points are: June truck tonnage down 13.6 percent year-over-year, according to the American Trucking Associations; cargo container volume decreases at the Ports of Long Beach and Los Angeles still hovering around 30 percent; and a recent report from the Federal Reserve’s “Beige Book,” indicating economic activity is weak heading into the summer, although the overall pace of decline has stabilized albeit at a low level.
“While some numbers are encouraging, I would not get too excited just yet,” said Eric Starks, president of freight transportation forecasting consultancy FTR Associates. “But they do tell us that economic conditions did not deteriorate at the same level in the second quarter as the first. It appears that the ‘bleeding’ has stopped or is coming to an end, and that the long healing process has begun.”
Starks noted that the current economic situation is not something many shippers have previously experienced, with shippers anxious for an uptick in demand heading into 2010 to chip away at excess inventories and subsequently force increased manufacturing output.
Other things to keep an eye on are rises in home starts and sales, according to Tim Feemster, senior vice president and director of global logistics at Grubb & Ellis Company. Feemster’s sentiment is supported by recent signs of stabilizing prices with a composite index of home prices in 20 major U.S. cities being flat, according to the Case-Shiller Price Index, compiled by Standard & Poor’s, which was reported by the New York Times, and followed reports that sales of existing home sales have been up for three straight months, with June being the largest percentage increase in eight years.
And Josh Green, CEO of Panjiva, an online search engine with detailed information on global suppliers and manufacturers, said the consensus regarding the economy seems to be that the bottom has been reached, but what happens from here is anyone’s guess.
“Whatever recovery we see is likely to be slow and steady, rather than a quick ramp up back to pre-recession levels,” said Green. “I think the thing nobody wants to talk about is that the fear that the growth we are seeing now is more of a hiccup and that there is risk of a further downturn. When [certain] indices come out, it does seem like we are moving in right direction, but we are still very vulnerable to any kind of external shocks to the system that could send things down and put the economy back on a downward stretch.”
Recent Panjiva data indicated that from June to July the number of global manufacturers shipping to the U.S. rose by 7 percent, which was consistent with the 6 percent gain seen during the same timeframe last year. Panjiva also reported that the 2008 increase preceded the freefall in global trade from July 2008 to February 2009. Even though the month-to-month increase was up 7 percent, Panjiva said that the overall number of companies currently shipping to the U.S. is down roughly 10 percent year-over-year.
From May to June, the number of global manufacturers shipping to the U.S. was flat, following increases of 2 percent from April to May, 8 percent from March to April, and 2 percent from February to March.
“We are basically following the seasonal path of last year, which is good news in this economic environment,” said Green. “It feels like the [economic momentum] is positive right now. At this time last year, it was a bit more uneasy and when things got worse the economy went into a tailspin. Now, it feels like it is going in the other direction, as we have seen some encouraging signs and may be regaining our footing. There is no question we are still vulnerable to additional shocks, though.”
Read the rest of the scmr.com article here.
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