Shipments were 7.2% below last June, while orders declined 2.4%. These bigger-than-expected drops are negative news for the freight volume outlook. However, inventory declined 0.7%, so the excess inventory continues to shrink.
The 3.3% monthly decline in non-durable goods shipments takes a big bite out of motor freight. Shipments had slipped only 0.6% over the previous 11 months. The declines were across the board in paper (-2.2%), beverages (-4.5%), tobacco (-5.5%), apparel (-2.0%), printing (-3.2%), petroleum (-10%), chemicals (-3.4%) and plastics (-2.2%). Outsize changes like this are frequently revised away. But it is a fact until that happens.
These declines are not inventory-driven, since inventories remained steady. Nor are they the result of reduced consumption, since spring quarter consumer spending, after inflation, rose slightly. That leaves two suspects: price declines and added imports. Falling prices account for the drop in petroleum shipments, plus some of the decline elsewhere, at most a quarter of the 3.3% overall decline. Higher imports resulting from an appreciating dollar account for most of the June weakening.
This problem will not go away soon. The dollar should be depreciating now, making imports more expensive because the U.S. has lower interest rates, higher inflation and a bigger trade deficit than most of our key trading partners. But the dollar continues to appreciate, as it often does in difficult times in the world economy. Loose money is pouring into the U.S., seeking higher investment returns and less political risk. Slower economic recovery is the price of being the world’s banker.