Logistics and business manufacturing: Economic indicators are positive, but freight levels have not caught up
Jeff Berman, Group News Editor -- Logistics Management, 6/1/2009
WASHINGTON and NEW YORK—While the recession continues, many reports indicate the economy has “bottomed out” and that a recovery may be in the works.
Some recent examples of a potential turnaround are:
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last week’s news from the Commerce Department that durable goods orders were up 1.9 percent in April at $161.5 billion;
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a recent analysis from freight transportation consultancy FTR Associates indicating that the worst of the recession is over, estimating that GDP growth will rise 2.7 percent in 2010 although “the road to recovery is likely to be difficult” and
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a report from the Conference Board indicating its Consumer Confidence index was up for the third straight month in May.
What’s more, recent data from Panjiva, an online search engine with detailed information on global suppliers and manufacturers, indicates that the number of global manufacturers shipping to U.S. customers was up for the second consecutive month, with February to March and March to April data up two and eight percent, respectively. Even though this appears to be positive, Panjiva CEO Josh Green told LM more stability is needed for a true turnaround.
“The most important conclusion I draw from this is that the freefall of global trade appears to have paused and hopefully halted,” said Green. “We were expecting a massive drop-off with these numbers, and the fact that there was actually an increase was surprising and a welcome bit of good news.”
Even with this good news, Green admitted there is still a lot of “risk” in the system, explaining how the economy is still vulnerable to future shocks, even though the sense of freefall from recent months appears to have ceased.
And if this freefall has stopped for now, Green said the economy remains at a low level of trade activity, which leads to some big questions. “What shape does the recovery take? Is it going to be gradual or are we going to deal with additional setbacks that will push us back into freefall?”
In another glimpse of positive news, the Institute of Supply Manufacturing (ISM) reported today that its monthly PMI (formerly known as the Purchasing Managers Index) hit 42.8 percent in May, ahead of March’s 40.1 percent. A PMI reading of 50 or better represents economic growth, but the index has been trending down for the past 16 months. December’s PMI was at a low of 32.9 and has gone up gradually every month since then.
Even though the PMI remains below 50, the ISM report showed growth in several key areas, including new orders, production, supplier deliveries, exports, and imports.
Even though some economic indicators represent some signs of economic life, it has yet to translate to the freight transportation sector, with trucking, railroad, intermodal, ocean, and air volume levels remaining flat or down. These levels were particularly depressed in the first quarter and the fourth quarter of 2008.
A leading economist told LM that while the first quarter may have been the bottom for freight levels, a future recovery will take some time.
“It might be better to characterize the bottom as having been the first quarter of the year,” said IHS Global Insight Economist Paul Bingham. “The second quarter won't be much of an increase but will be higher than the first quarter volumes.”
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