John’s Blog 9-20-11

Dear Friends,

The Federal Reserve reports a mixed bag of economic activity in the various districts around the U.S., with some very slight overall growth. It appears that the domestic economy has stalled somewhat while the brain trust in Washington argues over the best direction to take the country.

Between the pending election and the ongoing arguments in Washington over spending cuts, taxation, employment, infrastructure, and business investment, it is no wonder the consumer is confused – and hanging on to his money. It’s not that saving is a bad thing, but what the economy really needs at this point is consumer confidence.

That’s creeping upward, but not quickly or strongly enough. The Thompson Reuters/University of Michigan consumer sentiment index improved slightly in September to a reading of 57.8. In August the index was at 55.7. To me that says consumers are hopeful that once the politics are sorted out, we will be on the right track. For now, though, this translates into flat retail sales.

The Commerce Department reported retail sales were up 0.1% (if you take out auto and parts sales, which were down 0.3%) with small increases for electronics, appliances, grocery, sporting goods, building materials and on-line retailers. Apparel, furniture, restaurants and department stores all declined.

Earlier this year the economic rebound was led by the manufacturing sector, but lately that has been trending weaker.   The Federal Reserve said factory output was up 0.5% in August after a 0.6% increase in July. When one takes out automotive (up 2.6%), industrial production was up a very modest 0.2%. The Fed’s regional reports showed that manufacturing was weakest in the Northeast and Mid-Atlantic districts.

Separately, the Institute for Supply Management index continues to show expansion in manufacturing. The 25-month winning streak continues with an August reading of 50.6. That’s still in expansion territory (50+ benchmark), but a reduction from the July reading of 50.9.

The U.S. manufacturing sector relies on Europe for 25% of its sales, so looking across the pond at that economic mess provides clues to why industrial output is slowing.

In transportation, trucking and railroads seem to be faring well.  The American Association of Railroads said U.S. rail traffic was up 0.1% in the first week of September year over year, with 278,382 carloads handled. Containers/trailers were also up, with 208,090 carried for an increase of 0.6%. Hurricane Irene wrecked havoc with rail networks in the east, however, so volumes are expected to moderate this month and next.

The truckload sector awaits a ruling on the Hours of Service regulation that is forthcoming at the end of October. Driver recruitment is the number-one concern of carriers as freight volumes continue to hold up. The “right sized” fleets are handling freight at the current level of volume quite well and most carriers are obtaining good financial results.

The industry continues to make pricing increases hold, thanks largely to lowered capacity through fleet reductions and carrier bankruptcies over the last five years. Even the LTL companies such as ABF, ODF, Conway and Saia are seeing their 5-6% rate increases stick on stagnant freight volume.

Because of bad weather for crops and a lagging economy, refrigerated shipments are down, falling 14% in June according to the ATA.   While actual data is hard to come by, anecdotal conversations indicate that flatbed freight is doing well.

At Wagner we have been very busy with projects for the upcoming holidays. Our pallet POP display operation has been particularly active, with more than 10,000 of these complex displays under construction. Once built, they are then populated with inventory, over-wrapped and held awaiting the PO release date.

Wagner will also be tackling deployment of our RedPrairie WMS solution at a 500,000-sq.-ft. dedicated client facility. Once in place, our system will provide better information flow while cutting labor costs 10 to 15% through improved processes.

In transportation, Wagner’s volume continues to hold at above-budget shipment levels.  My thanks to the talented people in Wagner Logistics who refuse to back down from the challenge of moving loads in a tight trucking market.

If you have a supply chain challenge, please let us know. We pride ourselves on finding solutions. Bring it!

Have a great day!

John Wagner Jr