Industrial activity has picked up its pace during 2017 after a stretch of weakness that lasted from mid-2015 until late 2016. Recent reports have done little to change our underlying assumptions of the U.S. economy or freight demand.
Let’s key in on a couple of important segments to trucking and see what sort of movement has occurred during the first half of 2017.
It is easy to see from the chart above that mining activity was very, very strong early in 2017. This sector includes four important segments: stone/earth, metal, coal, and oil/gas. Not surprisingly, the impetus for growth has come from the oil and gas shale fields. Construction (and especially housing) have been lackluster, metal demand has rebounded some but remains weak, and coal demand turned back up in late 2016 but hasn’t moved much since then.
Durables are the biggest component of manufacturing and tend to be more cyclical than non-durables (we may not buy a new car during a recession, but we still eat and drive). This segment slowed noticeably during the second quarter – and it remains well below the average growth for this recovery.
Automotive (this includes both vehicles and parts) is a big component of durable manufacturing. While we did eke out a gain in the second quarter, you can easily see that we are running well below the recovery average and we had a very negative quarter in Q1. Automotive demand looks to have topped out, and growth in industrial activity or freight demand is not likely to come from this segment.
Non-durables did see a notable uptick in the second quarter. Surprisingly, this sector has been quite weak during much of this recovery. The three main segments are: food, fuel, and chemicals. Chemicals growth has been weaker than anticipated during this recovery as it seems that a portion of our export activity has dried up. Our abundant natural gas (thanks to fracking) would seem to be a positive since it is a major input into many of the chemical processes, but, as of yet, it has not made a big mark on overall output.
While some industrial activity has shown recent improvement, it is nowhere near the big gains in demand and pricing that we have seen from the spot market over the last year. Contract markets, however, are adjusting more slowly. Can we keep the growth going if the industrial sector doesn’t show further improvement?
One noteworthy item has been the sustained power of this recovery. It has not been overly strong, but it has been historically long. The good news is that there is nothing currently happening that would indicate a serious threat to the continuation of a 2%+ economy. That should give us a reprieve from recession talk for at least another year. After that…stay tuned.