Monday, February 22, 2010

2 Signs That Show Manufacturing Recovery Growth

While people have heard about the economy improving, many are still wondering why our job growth hasn't happened yet. When economies come out of recessions, it is normal that job growth lags behind. Companies begin to have volume pick up, but there are two reasons they don't want to hire anyone just yet....

  • Most companies have had losses in previous months and need to keep the labor force "lean" in order to raise profits;

  • Most companies don't want to hire additional people until they feel comfortable that a recovery is here to stay;

Keeping these two principles above in mind, here are a couple of indicators that would lead us to believe that the economy IS making a slow but steady recovery that is sustainable.

Consumer Price Index Grows in January

The consumer price index rose 0.2% in January, the fifth consecutive increase, the Labor Department said Friday.

The CPI increase followed a 0.2% gain in December. The so-called core CPI, which excludes food and energy, fell 0.1%, the first decrease in that index since 1982.

The increase was lower than economists’ forecasts of 0.3%, Bloomberg reported. Energy prices jumped 2.8%.

The CPI is the government’s broadest gauge of costs for goods and services. Almost 60% of the CPI covers prices consumers pay for services.

If consumer prices are climbing, it could reflect an increase in demand for consumer goods, which increases the demand for trucking services.

New York Manufacturing Index Rises

Manufacturing activity in the New York region grew this month at the fastest pace in four months, the Federal Reserve Bank of New York said Tuesday.

The regional Fed’s “Empire State Index,” generally the first economic indicator in a given month, rose to a 24.6 reading, from 15.9 in January, the regional Fed said.

Readings above zero indicate expansion, while below that shows contraction.

The index was higher than economists’ forecasts of an 18 reading, Bloomberg reported.

Manufacturing is one of trucking’s largest and most important customer.

So What Does All This Have to Do With Transportation??

Transportation is all about supply and demand. The "Good Ole Days" of multiple carriers fighting over freight at discounted rates may be coming to an end. Many companies did not survive the recession and there are fewer trucks to go around. Financing is still enormously difficult for existing companies to purchase more equipment.

The Result?? The Perfect Storm

If the economy takes off, we're probably going to have a period where there simply aren't enough trucks to go around. Trucks are going to go the highest bidder, so they can recover from the past few months of dismal earnings and losses.

Be prepared today to lock in rates whenever you can. You may be better off by offering a slightly higher rate to carriers today, rather than waiting later when you can't find any capacity.

By taking some pro-active steps, the smart transportation manager may have to give a little today to protect his/her company's costs tomorrow.


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