The largest drivers of freight demand are consumption and production. For the past year, the growth in consumption of has been unprecedented. The four largest month-over-month gains in retail sales have come since April 2020, largely driven by stimulus from Washington.

Production has not matched the trajectory, but the challenge has not been a lack of demand. For example, if you exclude the troubled aircraft industry, orders for durable manufactured goods have been running at record levels. Rather, the issue is supply of materials, components, and labor.

Another significant factor in the demand for freight transportation is inventories – or, more to the point, the relation of inventories to sales. The inventories-to-sales ratio traditionally has been a key indicator for assessing near-term transportation demand. Individual sectors – manufacturing, wholesale, and retail – have different norms for the ratio of inventories to sales, but as the ratio falls, we expect to see pressure for inventory replenishment, which bolsters freight volume beyond the period of initial consumer or manufacturing demand.

The pandemic produced wild swings in inventories-to-sales ratios due to abrupt changes in consumption and production. As of February, the most recent month for which data is available, the ratios for the manufacturing sector are roughly in line with where they were before the pandemic, and inventories in wholesale are noticeably leaner than they had been.

The most dramatic change has been in retail inventories. February saw an uptick in the ratio of inventories to sales following a record low retail inventories-to-sales ratio in January. With a huge jump in retail sales in March in the wake of the third round of stimulus, the inventories-to-sales ratio likely was as low as or even lower than January.

For trucking companies involved in hauling retail goods, this sounds like great news. It suggests that freight demand will outlive the bursts of consumption we have seen after each round of stimulus.

However, if we dig deeper, we find that a single sector – motor vehicles and parts – skews the data.

Motor vehicles are far more expensive than any other retail item, so changes in inventories or sales of automobiles and light trucks have an outsized effect on total retail inventories and sales, even when changes are small. During the pandemic, those changes have not been small. Sales have been robust, but their growth has been mostly in line with retail sales in general. The distortion comes from inventories.

Total retail trade inventories in February were down 5.1% year over year. However, inventories of motor vehicles and parts were down 17.1%. Excluding motor vehicles and parts, retail trade inventories were up 1.2%. That is not much growth, but it is growth. Of course, retail sales have been so strong that the ratio of inventories to sales is still extraordinarily low. But if sales weaken down the road, we will not necessarily see the same demand for replenishment that we would see if inventories were down on an absolute basis.

Aside from automotive, the only retail sectors with large declines in inventories during the pandemic are clothing stores and department stores – segments where lower inventories might not yield much sales pressure owing to the surge in e-commerce.

Automotive, however, faces a potentially crippling inventory crunch in the near term. While inventories are down quite sharply, retail sales of motor vehicles and parts were the highest on record in March. Meanwhile, automotive production during March was still about 8% below February 2020 (seasonally adjusted), and the near-term outlook for higher production is bleak due to the shortage of semiconductors.

The “glass half full” view of the situation is that extraordinarily tight inventories of cars, trucks, and SUVs could keep automotive production humming for many months beyond the period of very strong retail sales.