Monday, October 5, 2009

Logistics business: Cass Freight Index is up, but economy remains down

Jeff Berman, Group News Editor -- Logistics Management, 10/2/2009

WALTHAM, Mass.—In what may be viewed as positive news for freight trends, the Cass Information Systems Freight Index was up on a sequential basis from August to September, with a 2.8 percent gain for shipments.

The September index, which measures freight expenditures and payables at 0.966 (1990=1.00), was down 10.6 percent year-over-year, ahead of August, which was down 16.6 percent year-over-year and July, which was down 15.3 percent year-over-year.

According to Credit Suisse Analyst Chris Ceraso, the Cass Freight Index sometimes leads the American Trucking Associations’ (ATA) monthly tonnage index when freight picks up. The ATA tonnage index is also showing positive momentum of late, with a 2.1 percent gain in both August and September.

While the Cass Freight Index is up, many economic indicators remain mixed—making it hard to gauge in some cases just how much the economy is recovering since many economists and industry organizations have indicated it has bottomed.

A few examples of the mixed signs include: today’s jobs report from the Department of Labor indicating unemployment is just under 10 percent, the Department of Commerce’s report that manufactured goods orders in August were down 0.8 percent—or $2.8 billion—to $352.9 billion, consumer spending remaining down, coupled with trucking volumes and the Cass Freight Index up, as well as the Institute of Supply Management reporting its September manufacturing index was up for the second straight month.

Even with the economy showing some signs of life, an industry source told LM there is still more bad news than good news when it comes to a meaningful recovery.

“I don't see the economy improving, said the source, “and I don't see reason to be hopefully optimistic. Unemployment continues to rise, which means spending will continue to drop which means companies will have to continue to cut.”

In a recent interview with LM, IHS Global Insight Economist Paul Bingham said even though the economy remains largely down, there are reasons for optimism, as well as recognition that a contributor to the recent freight transportation volume increases is the long-standing seasonal factors at work, even if muted by reduced household and business purchasing activity.

“There are early signs of recovery also in the numbers as same-month year-ago comparisons turn positive, against already weak comparable months last year ago when the recession was already underway,” said Bingham. “We project the recovery is upon us in North America in the 4th quarter of the year, albeit with a slow pace. The projection is not for any return to the booming double digit annual volume growth rates we saw during the first half of the decade. This is primarily due to consumer spending not being able to reach the rate of consumption that implied because household savings rates will remain positive and more limited consumer credit availability both work to constrain import spending.”

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