Economic growth has averaged only 1% over the past year. No surprises here. The slim growth was widely expected. The spending mix was also anticipated: Consumer spending keeps growing while investment spending plunges. This report is neutral for the timing of the recovery in the U.S. and the outlook for freight volume.
Regionally, manufacturing centers are experiencing the most declines in spending and income. This includes the heavy manufacturing cities in the Great Lakes and upper south regions, high-tech manufacturing in California and apparel and textiles (weakened exports) in the south Atlantic region.
Inventories shrunk $29 billion for the second consecutive quarter. Obviously, this reduces freight needs. Inventory reduction will continue for several more quarters but it appears to be largely complete for packaged goods manufacturers.
The only strong sectors are consumer durables (6% growth rate) and housing investment (7.4% growth rate). Both are being driven by price and credit rate cuts and will get another boost this quarter from tax rebates and falling energy prices. Both have been growing for over a year at an unsustainable pace that is unlikely to persist beyond this summer. Consumers are becoming nervous about the economic outlook because they can see the labor market worsen. The key non-durable consumption sector that generates most of the trailer loads continued to weaken. Growth fell to 0.4% in the second quarter. Through last summer growth had averaged near 5% for several years. Some of this decline was due to the now reversed spring surge in gasoline prices. Nonetheless, packaged goods freight volume will grow only in the 1%-2% range through the end of the year.
Information processing equipment, especially telecommunications equipment, is the only critically weak industry with no recovery in sight this year. Non-residential construction and industrial machinery have weakened sharply this year, but have keep orders and production reasonably in balance, so they should begin recovery in early 2002.