Robert Sutton, Executive Vice President of Innovation at BNSF Logistics, reviews how month-over-month market and economic factors affect transportation and the supply chain.

AMERICANS ARE SEEING DOCTORS AGAIN AND SPENDING MORE ON TRAVEL AND ENTERTAINMENT

The increase in employment last month was concentrated in hotels, restaurants, and healthcare businesses. However, hiring also rose in construction and manufacturing, two economic areas under more duress.

• The unemployment rate was unchanged at 3.7%
• The economy added 263,000 new jobs in November
• Hourly pay rose by 0.6% for the month to an average of $32.82
• The labor force participation rate fell for the third month in a row to 62.1%

The price of gasoline continues to fall, and it had now returned to where it was before Russia invaded Ukraine. In addition, used-vehicle prices have fallen for the fifth month in a row.

• Headline inflation in November cooled again to an annualized rate of 7.1
• Food prices were up 0.5% in November
• Consumer sentiment bounced back in December to 59.1

The decrease in retail sales was the largest we have seen in almost a year, and a considerable part of the blame lies with poor auto sales. In addition, it appeared that a slowing economy and higher interest rates played a role in this.

• Sales at U.S. retailers fell 0.6% in November
• Car and car parts sales declined 2.3% in November

The rate of construction for single-family homes slowed down while the pace of construction for multi-family buildings increased.

• New home construction fell a seasonally adjusted 0.5% in November to 1.43 million
• Building permits for new homes fell 11.2% to 1.34 million in November

Even while car sales are decreasing due to increased pricing and higher borrowing costs, the volume of available automobile inventory is rising as production keeps ramping up. This is even though prices are continuing to grow.

• New light-vehicle sales in November totaled 14.1 million units
• The average new vehicle transaction price was $46,823 (up from $46,277 in October)

After two years of persistent shortages, manufacturers can create more, but demand has stayed the same. In addition, higher interest rates and a strong dollar are hurting US sales and exports.

• Durable goods orders jumped 1% in October
• Orders for aircraft rose a sharper 7.4%
• Orders for new cars climbed 0.6% in October
• New orders rose a still decent 0.5%
  
  

THE SUPPLY/DEMAND BALANCE IN U.S. TRUCKING MARKETS HAS LOOSENED THIS YEAR

The first time since May this year that the Manufacturing sector has shown signs of contraction is October.

• November Manufacturing PMI® registered 49.0 percent, 1.2 points lower than October
• Petroleum, coal, and transportation equipment reported weak-to-moderate growth in November. · Electronics: Suppliers maintain soaring prices and record profits despite slowing demand
• Transport equipment: Strong orders. Supply chain problems remain with minimal output impact
• Electrical/Appliances, Overall, things are getting worse. Construction slowed. We are doing okay, but the industry is down. Inventory holds our cash

In contrast to what has been seen during this year, inventory measurements have now settled into more sustainable growth rates.

• LMI came in at 53.6 in November, down (-3.9) from October’s reading of 57.5
• Transportation Capacity registered at 71.4 in November
• Warehousing Capacity remains in contraction territory with a reading of 46.8

Inventory Costs fell (-7.5) from October's 80.9 to 73.4. (Back in line with prior months suggesting October was an aberration). As inventory levels fall, so do Inventory Costs.

Freight volumes returned to a flattish level in November compared to a year ago after comparisons and other temporary issues, including repositioning mistimed inventories and customers getting ahead of rising interest rates.

• The shipments component of the Cass Freight Index® fell 0.4% y/y in November
• On an m/m basis, the index fell 1.9% or 0.5% on a seasonally adjusted (SA) basis

The expenditures component of the Cass Freight Index, which measures the total amount spent on freight, rose 4.7% y/y in November, slowing from an 11.1% increase in October.

• Expenditures rose 1.8% m/m after a 4.9% drop in October
• On an SA basis, expenditures rose 3.9% m/m in November, with shipments down 0.5% m/m and rates up 4.4%

Much of Truck manufacturing is scheduled for 2023. However, the new year will bring additional restraint. Supply chains and labor will continue to limit production despite economic uncertainty.

• Preliminary Class 8 net orders for November fell to 34,300
• Trailer orders in November reached 39,000

Demand is expected to stay high through the first half of next year as fleets continue to replace obsolete equipment. Demand is expected to remain robust for the time being as fleets continue to replace old equipment.