Housing, Manufacturing Numbers Good News for Trucking

May 24, 2012

Two key economic indicators that affect trucking freight, housing starts and industrial production, exceeded expectations in April.



Housing starts rose 2.6% to a 717,000 annual rate, up from March's revised 699,000 pace (which was stronger than previously reported), according to the Commerce Department this week. Industrial production climbed 1.1%, reported the Federal Reserve last week, the most since December 2010.

Housing

The housing market looks more positive, with April's housing starts near the highest levels in over three years and showing signs of growth.

"After bottoming in 2009, the U.S. housing sector has had little to no substantial growth; however, today's housing starts now show an increase for the first time in three months and, coupled with other indications of improved conditions, are suggesting a turn for the better," said Jennifer Lee, Senior Economist, BMO Capital Markets.

Numbers have hit a two-month high of 717,000 units annualized in April (up 2.6% from March). The Midwest and the Southern states led the gains, significantly beating projected estimates.

Todd Fowler, an analyst in Cleveland at investment banking firm KeyBanc Capital Markets, told Bloomberg that as a rule of thumb, each new residence requires between five and eight truckloads to transport supplies such as lumber, roofing materials and interior furnishings. Flatbeds will likely be the first to benefit, moving lumber and other construction materials.

If starts were to remain above 750,000 for a 12-month period, trucking companies would need to add about 4,000 trucks to the road, according to Fowler's calculations.

However, Landstar CFO James Gattoni said in a late-April conference call that from his company's perspective, "housing really hasn't turned," reported Bloomberg. (Landstar runs more than 3,000 flatbeds.)

Manufacturing

Manufacturing, which makes up about 75% of total production, rose 0.6% in April. Auto sales in the first quarter, the strongest in four years, were key to the manufacturing figures.

In addition, a report from the Commerce Department showed new orders for durable goods rose 0.2% in April after dropping 3.7% in March.