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The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.

The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.

Postings are weekly.


November 19, 2015

Southeastern Transportation: Tapping the Brakes?

Em_trade_transportation

The Atlanta Fed's Trade and Transportation Advisory Council met on October 6 at the Jacksonville Branch to discuss economic conditions in the industry. According to a majority of council members, transportation activity has been affected by slowing of exports resulting from tepid global demand, a stronger dollar, and increased inventory levels. Although the European economy appeared to be doing better, the slowdown in China was having an impact on every key global market.

Council members reported seeing growth in inventory-to-sales, which reduced customers' needs for transportation services, and most members perceived the extra inventory as a result of slower sales rather than from overpurchasing or hedging against future price increases.

Employment and labor markets pose continuing challenges
Finding appropriate labor in logistics at all levels continues to be a challenge. Issues negatively affecting recruiting include failing substance abuse tests, experience and education gaps, and difficulty attracting talented youth into the sector. As these issues continue, domestic trucker and qualified mechanic availability remains a concern.

Costs, prices paint a mixed picture
Driver shortages continued to plague the industry, and persistent increases in driver pay have not alleviated the problem. Demand for talent has been pushing wages up for professional levels as well. However, some reported different types of pressure that are causing turnover and recruitment challenges. For example, younger workers expect flexibility, access to technology, and scheduling autonomy, conditions that are difficult to accommodate in businesses that require a specific work schedule.

Declines in fuel costs were reportedly keeping overall nonlabor costs steady by offsetting increases in other input costs. Increases in insurance premiums and an uptick in equipment costs were examples of upward pressure on costs. Congestion at West Coast ports was cited as a cause for an increase in nonproductive operating costs.

Regarding pricing power, rail continued to see strong pricing power as capacity remains tight across other modes of transportation. For others, the softening of the economy has dampened the ability to raise prices. Therefore, pricing power is limited, and increases engender considerable customer pushback. The majority of council members, however, expect to be able to increase rates one year out and beyond, though opportunities could become limited if the economy does not continue to improve and fuel prices do not rebound.

International trade plays a regional role
The appreciation of the dollar has continued to exert downward pressure on exports. The economic slowdown in China, the larger Asia-Pacific region, and Latin America (specifically, the recession in Brazil and ongoing economic turmoil in Venezuela) is substantially affecting air trade. However, these markets have not had a material impact on some transportation businesses such as rail since exports' direct exposure to the Chinese economy is limited.

Over the horizon...
Although the overall message from this council meeting was one of decelerating activity, the majority of council members anticipate the same level of growth during the next three to six months, and they expect the same or higher level of activity during the next two to three years.

Topping the list of challenges for the industry down the road are the lack of drivers, finding and retaining quality/qualified labor, and a tighter regulatory environment, which may exacerbate the driver shortage in the coming years. Council members said long-term strategic planning and capital investments in ports and highway infrastructure will be necessary to continue to meet demand.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch

May 12, 2015

Trials and Tribulations in Transportation

Members of the Atlanta Fed's Trade and Transportation Advisory Council convened on April 7 at the Atlanta Fed's Jacksonville Branch to discuss the Southeast latest developments in this sector.

Just over half of council members reported an expansion of overall activity compared with the same period last year. A few members reported reduced freight activity, citing the primary causes as both a decrease in movement of materials related to oil exploration and the appreciation of the U.S. dollar against the euro. Members noted that severe winter weather affected shipments for railroads and truckers primarily throughout the north and northeast United States, and the West Coast ports situation disrupted supply chains across the country. East Coast port volumes are now over capacity as shippers began diverting cargo away from the West Coast. Council members anticipate that it will be August before the backlog of port cargo will be cleared, a situation that may adversely affect the peak fall shipping season. However, members believed that many of the structural problems of the West Coast ports will remain in place long after the labor situation is resolved.

Employment, wage picture largely mixed
A majority of council members reported that employment levels were flat or slightly higher compared with this time last year, and two-thirds of council members expect higher workforce levels this time next year.

Truck driver shortages remained an almost universal concern for the industry. Technicians (formerly referred to as mechanics) are also in demand and harder to find as new federal emission requirements demand workers with more specialized skills.

Responses regarding wage pressures were mixed. Trucking companies continued to raise driver pay, as finding willing and qualified truck drivers remained difficult. Outside of specific areas of expertise, such as railroad engineers and technicians, employers were easily filling nondriver positions without increasing starting salaries. Logistics firms, however, perceived the labor market as tightening and reported more frequent voluntary turnover with "higher pay" being cited as a reason for leaving. Additionally, candidates were receiving multiple offers and enhanced benefits packages.

Nonlabor input costs and prices
A number of council members reported seeing some upward cost pressures in nonlabor inputs such as commercial insurance, equipment, locomotives and leases, ocean freight rates, and domestic trucking rates. The sharp decline in fuel costs, however, has helped keep overall costs down.

Almost all council members reported better pricing power since the last meeting in October 2014. Members indicated that some customers understand market forces and work to negotiate the best deal possible with their current carrier, but others shop around for the lowest cost. All council members anticipate greater ability to raise prices one year out and beyond, citing constrained capacity and expected higher commodity prices as the principal reasons, along with seeking to recover increased regulatory compliance costs.

International trade rises modestly
Council members with insight into international trade indicated modest growth in imports, related to the strong U.S. dollar against the euro and other foreign currencies and an improved domestic economy. Regions expected to drive demand for U.S. exports are South America and Asia as those economies continue to expand consumer buying power. Near-shoring is expected to become a bigger trend, and the automotive sector's investments in Mexico will drive greater cross-border growth between the United States and Mexico.

Outlook
Two-thirds of council members expect higher growth in the short term. Over the next two to three years, three-quarters of members expect higher growth. When asked about the most challenging issues facing the transportation sector, responses varied by sub-industry. Driver shortages continued to be the headliner, along with regulatory issues, which continued to drive capacity out of the market and significantly push up operations costs. Broadly, the supply chain has been adversely affected by infrastructure constraints, and this impact could persist: the United States has a great need for well-planned and properly funded hard infrastructure investment in ports and road networks to get goods to market.

The council meets again in October, and SouthPoint will report whether the summer months reflect improving conditions for the movement of goods.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch

October 27, 2014

Southeastern Transportation Continues Rolling

Members of the Atlanta Fed’s Trade and Transportation Advisory Council met in Atlanta on October 8 to discuss the latest updates on and insights into the industry. Most council members reported expansion continuing into the fourth quarter. Year over year, demand was greater across the majority of industries represented. In rail, shipments of frac sand, which is used in the hydraulic-fracturing process (commonly referred to as fracking) to produce petroleum products such as oil, natural gas and natural gas liquids from rock, and crude oil were up substantially, and intermodal volumes were steadily rising as a result of trucking capacity constraints. Ocean shippers reported a shift in the modes of movement of commodities, which were historically shipped in bulk but are now shipped in containers, causing a shortage of containers for traditional use. Demand in the flatbed trucking market was very strong, with shipments of drywall and bulk cement increasing. Going into the holidays, logistics firms anticipate e-commerce volume to pick up substantially by mid-November.

Employment
Reports on current employment levels this year versus last year at this time were mixed. More than half anticipate just slightly higher staffing levels this time next year. Truck driver turnover for the overall industry is quite high. For new drivers, turnover within the first 90 days of employment is very high. Trucking firms reported that only a very small percentage of applicants are hired, as many do not meet driver requirements.

Costs, wages, and prices
Most reported moderate increases in nonlabor input costs. Wages were reported as modestly increasing across most transportation industries with the exception of trucking, where wages continued to increase at a clip of 6 percent to 7 percent annually. Reports on increases in health care premiums for 2015 varied, ranging from less than 1 percent up to 20 percent. Some companies reported anticipated changes to plan structures to mitigate expenses, and others plan to share rate increases with employees. Regarding pricing power, a few reported an ability to raise prices, but others reported significant pushback by clients. Trucking firms plan to continue raising rates amid rising demand, reduced capacity, and continued increases in driver pay.

International trade issues
According to council members, the net impact of the recent strengthening of the dollar had been minimal on international activity when this meeting was held. A slowing trend in world trade was cited by one council member as the biggest factor affecting both imports and exports.

Overall, the sentiment of this group has improved since the last meeting in April, and all council members reported a higher outlook for short- and medium-term growth, with greater confidence in their forecasts. Council members were asked to cite the single most challenging issue facing their industry today. Trucking firms indicated that the lack of truck drivers and increased industry regulations will continue to cause diminished capacity for the foreseeable future. In maritime trade, ongoing ocean carrier consolidations will impact all U.S. container ports and there will be both winners and losers as a result of the carriers’ decisions.

What impact will these challenges have on commerce? The council meets again in April 2015. We’ll watch as conditions play out, and we’ll relay the information here.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch

July 25, 2014

Auto Sales Accelerating

"My pappy said 'Son, you're gonna drive me to drinkin' if you don't stop drivin' that hot rod Lincoln.'"
—Charley Ryan, 1958

Automobiles have loomed large in the American experience since Henry Ford's Tin Lizzie—the fabled Model T—first rolled off the assembly line in 1908. Back in the 1940s and 1950s, a favorite pastime of American youth was hot-rodding (or so I've been told by my much, much older siblings). Cars have inspired countless songs, including Charley Ryan's "Hot Rod Lincoln" and "Beep, Beep," a tempo-changing ditty from 1958 about a Nash Rambler and a Cadillac. And in the 1973 movie American Graffiti, who can forget the iconic 1932 Deuce Coupe driven by John Milner or Toad's 1958 Impala? It was all about the cars!

And it appears consumers feel pretty much the same way. The one shining star throughout this recovery in the wake of the Great Recession has been the growth in unit sales of motor vehicles. I think it's safe to say that folks are buying new rides; it's just that simple. Although retail sales have been growing modestly, motor vehicle sales have been one of the driving forces (OK, yes—pun intended) behind the upward movement seen overall.

Light vehicle sales continued rising in June, reaching a postrecession high of 16.9 million units (the seasonally adjusted annual rate; see the chart).

This growth can also been seen when looking at consumer credit outstanding. Consumer credit is debt that a consumer enters into with the intent of making an immediate purchase. There are two types of consumer credit: revolving and nonrevolving. Let's look for a moment at nonrevolving credit, which is defined as an installment loan in which the amount borrowed (plus interest) is repaid at set intervals for the life of the loan. As the chart below shows, nonrevolving credit has been growing over roughly the same period as vehicle sales, which is not surprising when you consider that vehicle loans account for roughly 40 percent of this type of credit.

According to the U.S. Census Bureau, automobile sales declined 0.2 percent in June. However, a year-over-year comparison shows that vehicle sales increased 7.0 percent (see the chart). The consensus among our regional auto dealer contacts have indicated they've seen a steady increase in year-to-date sales and are expecting "sales for the remainder of the year to be fairly robust."

Historically, auto sales fluctuate quite a bit. But as you can see, the chart above supports the claim that vehicle sales have shown strong growth compared with total retail sales since the end of the recession. These data provide insight into consumer spending trends. Although this is just one data series in a long list of economic indicators we follow, I think it's fair to say this one gives a better understanding of consumer behavior.

So we'll keep our eye on this indicator. And remember, "Beep-beep, beep-beep. His horn went beep-beep-beep."

Photo of Chris Viets By Chris Viets, a REIN analyst in the Atlanta Fed's Jacksonville Branch

November 19, 2015

Southeastern Transportation: Tapping the Brakes?

Em_trade_transportation

The Atlanta Fed's Trade and Transportation Advisory Council met on October 6 at the Jacksonville Branch to discuss economic conditions in the industry. According to a majority of council members, transportation activity has been affected by slowing of exports resulting from tepid global demand, a stronger dollar, and increased inventory levels. Although the European economy appeared to be doing better, the slowdown in China was having an impact on every key global market.

Council members reported seeing growth in inventory-to-sales, which reduced customers' needs for transportation services, and most members perceived the extra inventory as a result of slower sales rather than from overpurchasing or hedging against future price increases.

Employment and labor markets pose continuing challenges
Finding appropriate labor in logistics at all levels continues to be a challenge. Issues negatively affecting recruiting include failing substance abuse tests, experience and education gaps, and difficulty attracting talented youth into the sector. As these issues continue, domestic trucker and qualified mechanic availability remains a concern.

Costs, prices paint a mixed picture
Driver shortages continued to plague the industry, and persistent increases in driver pay have not alleviated the problem. Demand for talent has been pushing wages up for professional levels as well. However, some reported different types of pressure that are causing turnover and recruitment challenges. For example, younger workers expect flexibility, access to technology, and scheduling autonomy, conditions that are difficult to accommodate in businesses that require a specific work schedule.

Declines in fuel costs were reportedly keeping overall nonlabor costs steady by offsetting increases in other input costs. Increases in insurance premiums and an uptick in equipment costs were examples of upward pressure on costs. Congestion at West Coast ports was cited as a cause for an increase in nonproductive operating costs.

Regarding pricing power, rail continued to see strong pricing power as capacity remains tight across other modes of transportation. For others, the softening of the economy has dampened the ability to raise prices. Therefore, pricing power is limited, and increases engender considerable customer pushback. The majority of council members, however, expect to be able to increase rates one year out and beyond, though opportunities could become limited if the economy does not continue to improve and fuel prices do not rebound.

International trade plays a regional role
The appreciation of the dollar has continued to exert downward pressure on exports. The economic slowdown in China, the larger Asia-Pacific region, and Latin America (specifically, the recession in Brazil and ongoing economic turmoil in Venezuela) is substantially affecting air trade. However, these markets have not had a material impact on some transportation businesses such as rail since exports' direct exposure to the Chinese economy is limited.

Over the horizon...
Although the overall message from this council meeting was one of decelerating activity, the majority of council members anticipate the same level of growth during the next three to six months, and they expect the same or higher level of activity during the next two to three years.

Topping the list of challenges for the industry down the road are the lack of drivers, finding and retaining quality/qualified labor, and a tighter regulatory environment, which may exacerbate the driver shortage in the coming years. Council members said long-term strategic planning and capital investments in ports and highway infrastructure will be necessary to continue to meet demand.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch

May 12, 2015

Trials and Tribulations in Transportation

Members of the Atlanta Fed's Trade and Transportation Advisory Council convened on April 7 at the Atlanta Fed's Jacksonville Branch to discuss the Southeast latest developments in this sector.

Just over half of council members reported an expansion of overall activity compared with the same period last year. A few members reported reduced freight activity, citing the primary causes as both a decrease in movement of materials related to oil exploration and the appreciation of the U.S. dollar against the euro. Members noted that severe winter weather affected shipments for railroads and truckers primarily throughout the north and northeast United States, and the West Coast ports situation disrupted supply chains across the country. East Coast port volumes are now over capacity as shippers began diverting cargo away from the West Coast. Council members anticipate that it will be August before the backlog of port cargo will be cleared, a situation that may adversely affect the peak fall shipping season. However, members believed that many of the structural problems of the West Coast ports will remain in place long after the labor situation is resolved.

Employment, wage picture largely mixed
A majority of council members reported that employment levels were flat or slightly higher compared with this time last year, and two-thirds of council members expect higher workforce levels this time next year.

Truck driver shortages remained an almost universal concern for the industry. Technicians (formerly referred to as mechanics) are also in demand and harder to find as new federal emission requirements demand workers with more specialized skills.

Responses regarding wage pressures were mixed. Trucking companies continued to raise driver pay, as finding willing and qualified truck drivers remained difficult. Outside of specific areas of expertise, such as railroad engineers and technicians, employers were easily filling nondriver positions without increasing starting salaries. Logistics firms, however, perceived the labor market as tightening and reported more frequent voluntary turnover with "higher pay" being cited as a reason for leaving. Additionally, candidates were receiving multiple offers and enhanced benefits packages.

Nonlabor input costs and prices
A number of council members reported seeing some upward cost pressures in nonlabor inputs such as commercial insurance, equipment, locomotives and leases, ocean freight rates, and domestic trucking rates. The sharp decline in fuel costs, however, has helped keep overall costs down.

Almost all council members reported better pricing power since the last meeting in October 2014. Members indicated that some customers understand market forces and work to negotiate the best deal possible with their current carrier, but others shop around for the lowest cost. All council members anticipate greater ability to raise prices one year out and beyond, citing constrained capacity and expected higher commodity prices as the principal reasons, along with seeking to recover increased regulatory compliance costs.

International trade rises modestly
Council members with insight into international trade indicated modest growth in imports, related to the strong U.S. dollar against the euro and other foreign currencies and an improved domestic economy. Regions expected to drive demand for U.S. exports are South America and Asia as those economies continue to expand consumer buying power. Near-shoring is expected to become a bigger trend, and the automotive sector's investments in Mexico will drive greater cross-border growth between the United States and Mexico.

Outlook
Two-thirds of council members expect higher growth in the short term. Over the next two to three years, three-quarters of members expect higher growth. When asked about the most challenging issues facing the transportation sector, responses varied by sub-industry. Driver shortages continued to be the headliner, along with regulatory issues, which continued to drive capacity out of the market and significantly push up operations costs. Broadly, the supply chain has been adversely affected by infrastructure constraints, and this impact could persist: the United States has a great need for well-planned and properly funded hard infrastructure investment in ports and road networks to get goods to market.

The council meets again in October, and SouthPoint will report whether the summer months reflect improving conditions for the movement of goods.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch

October 27, 2014

Southeastern Transportation Continues Rolling

Members of the Atlanta Fed’s Trade and Transportation Advisory Council met in Atlanta on October 8 to discuss the latest updates on and insights into the industry. Most council members reported expansion continuing into the fourth quarter. Year over year, demand was greater across the majority of industries represented. In rail, shipments of frac sand, which is used in the hydraulic-fracturing process (commonly referred to as fracking) to produce petroleum products such as oil, natural gas and natural gas liquids from rock, and crude oil were up substantially, and intermodal volumes were steadily rising as a result of trucking capacity constraints. Ocean shippers reported a shift in the modes of movement of commodities, which were historically shipped in bulk but are now shipped in containers, causing a shortage of containers for traditional use. Demand in the flatbed trucking market was very strong, with shipments of drywall and bulk cement increasing. Going into the holidays, logistics firms anticipate e-commerce volume to pick up substantially by mid-November.

Employment
Reports on current employment levels this year versus last year at this time were mixed. More than half anticipate just slightly higher staffing levels this time next year. Truck driver turnover for the overall industry is quite high. For new drivers, turnover within the first 90 days of employment is very high. Trucking firms reported that only a very small percentage of applicants are hired, as many do not meet driver requirements.

Costs, wages, and prices
Most reported moderate increases in nonlabor input costs. Wages were reported as modestly increasing across most transportation industries with the exception of trucking, where wages continued to increase at a clip of 6 percent to 7 percent annually. Reports on increases in health care premiums for 2015 varied, ranging from less than 1 percent up to 20 percent. Some companies reported anticipated changes to plan structures to mitigate expenses, and others plan to share rate increases with employees. Regarding pricing power, a few reported an ability to raise prices, but others reported significant pushback by clients. Trucking firms plan to continue raising rates amid rising demand, reduced capacity, and continued increases in driver pay.

International trade issues
According to council members, the net impact of the recent strengthening of the dollar had been minimal on international activity when this meeting was held. A slowing trend in world trade was cited by one council member as the biggest factor affecting both imports and exports.

Overall, the sentiment of this group has improved since the last meeting in April, and all council members reported a higher outlook for short- and medium-term growth, with greater confidence in their forecasts. Council members were asked to cite the single most challenging issue facing their industry today. Trucking firms indicated that the lack of truck drivers and increased industry regulations will continue to cause diminished capacity for the foreseeable future. In maritime trade, ongoing ocean carrier consolidations will impact all U.S. container ports and there will be both winners and losers as a result of the carriers’ decisions.

What impact will these challenges have on commerce? The council meets again in April 2015. We’ll watch as conditions play out, and we’ll relay the information here.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch

July 25, 2014

Auto Sales Accelerating

"My pappy said 'Son, you're gonna drive me to drinkin' if you don't stop drivin' that hot rod Lincoln.'"
—Charley Ryan, 1958

Automobiles have loomed large in the American experience since Henry Ford's Tin Lizzie—the fabled Model T—first rolled off the assembly line in 1908. Back in the 1940s and 1950s, a favorite pastime of American youth was hot-rodding (or so I've been told by my much, much older siblings). Cars have inspired countless songs, including Charley Ryan's "Hot Rod Lincoln" and "Beep, Beep," a tempo-changing ditty from 1958 about a Nash Rambler and a Cadillac. And in the 1973 movie American Graffiti, who can forget the iconic 1932 Deuce Coupe driven by John Milner or Toad's 1958 Impala? It was all about the cars!

And it appears consumers feel pretty much the same way. The one shining star throughout this recovery in the wake of the Great Recession has been the growth in unit sales of motor vehicles. I think it's safe to say that folks are buying new rides; it's just that simple. Although retail sales have been growing modestly, motor vehicle sales have been one of the driving forces (OK, yes—pun intended) behind the upward movement seen overall.

Light vehicle sales continued rising in June, reaching a postrecession high of 16.9 million units (the seasonally adjusted annual rate; see the chart).

This growth can also been seen when looking at consumer credit outstanding. Consumer credit is debt that a consumer enters into with the intent of making an immediate purchase. There are two types of consumer credit: revolving and nonrevolving. Let's look for a moment at nonrevolving credit, which is defined as an installment loan in which the amount borrowed (plus interest) is repaid at set intervals for the life of the loan. As the chart below shows, nonrevolving credit has been growing over roughly the same period as vehicle sales, which is not surprising when you consider that vehicle loans account for roughly 40 percent of this type of credit.

According to the U.S. Census Bureau, automobile sales declined 0.2 percent in June. However, a year-over-year comparison shows that vehicle sales increased 7.0 percent (see the chart). The consensus among our regional auto dealer contacts have indicated they've seen a steady increase in year-to-date sales and are expecting "sales for the remainder of the year to be fairly robust."

Historically, auto sales fluctuate quite a bit. But as you can see, the chart above supports the claim that vehicle sales have shown strong growth compared with total retail sales since the end of the recession. These data provide insight into consumer spending trends. Although this is just one data series in a long list of economic indicators we follow, I think it's fair to say this one gives a better understanding of consumer behavior.

So we'll keep our eye on this indicator. And remember, "Beep-beep, beep-beep. His horn went beep-beep-beep."

Photo of Chris Viets By Chris Viets, a REIN analyst in the Atlanta Fed's Jacksonville Branch