National tender volume retreated more than 5% over the past week, in continuation of the now more than 15% slide since Thanksgiving. In a year in which seasonal patterns have been ignored and chaos has reigned, volumes are actually following a seasonal path into the Christmas holiday, albeit at a much higher level than normal. The Outbound Tender Volume Index (OTVI) has declined on average 6%-8% over the past three-week period in previous years, but due to the extraordinarily high base this year, the decline is steeper.
American consumers have proved resilient so far this year in keeping the economy afloat with their willingness to spend more money each month even in the face of mounting job losses, political uncertainty and recurring virus outbreaks.
But that streak has come to an end. Not only did the November retail sales total come in 1.1% lower than October, but the 0.3% increase in October was revised down to a 0.1% decline. Nonetheless, total retail sales remain positive on a year-over-year basis, up 4.1% over last November.
The retail sales report and other readings on the U.S. economy suggest the recovery is slowing somewhat after an acceleration of growth over the summer. Hiring eased in November while workers filing for unemployment benefits rose. Separate surveys of factories and service-industry companies released on Wednesday indicate U.S. output grew at a solid pace in early December but at the weakest pace in about three months. Even home builder confidence slipped in December, albeit from an all-time high.
Economists said the retail declines were “warning signs” that the economy was entering a rough patch and in need of a jolt from another round of government stimulus. The November slide, in particular, adds new urgency to this week’s stimulus package discussion on Capitol Hill. On Wednesday, top Democrats and Republicans were said to be nearing a $900 billion deal that would expand unemployment benefits and provide new stimulus checks to consumers.
Consumer spending accounts for roughly 70% of the U.S. economy, and we estimate 40%-45% of all freight consists of consumer-facing goods, so a healthy backdrop for retail sales is pivotal for rejuvenating the freight bull market.
Last week the Passport Research Team said that the trucking market was beginning to flash yellow warning signs. The data this week does not support a change in that view.
On a negative note, only two of the 15 major freight markets that we monitor as a broad, representative benchmark were positive on a week-over-week basis. The ratio weakened from the stronger levels it has become accustomed to in recent months as the freight market rallies, but this was expected as load tenders typically fall seasonally in the week before Christmas. The markets with the largest gains this week in OTVI.USA were Laredo, Texas (2.47%), and Chicago (0.99%). The markets with the largest declines this week in OTVI.USA were Atlanta (-15.56%), Newark, New Jersey (-14.2%), and Los Angeles (-10.61%).
Tender rejections remain elevated
Similar in fashion to tender load volumes, tender rejections have been following a seasonal path over the past week. With Christmas just six days away, carriers are seeking freight that will send or keep drivers near their homes. Prior to this week, the Outbound Tender Reject Index (OTRI) had fallen considerably off all-time highs, but the index has reversed trend and moved significantly higher, settling Friday at 26.75%.
In being ultra selective and bracketing drivers, carriers voluntarily and naturally give up some pricing power to the shippers. For this reason, OTRI may potentially retest the Thanksgiving highs if it continues to climb higher through Christmas Day, but spot rates are less likely to retest the recent year-to-date highs.
Looking at the country regionally, Southern California has loosened as truckers entered the market to book one last high-paying load before the holiday. Carriers are still rejecting more than one in five loads out of Los Angeles and Ontario, but capacity is less difficult to secure now than in previous weeks.
Much of the rest of the country is tightening as drivers exit the highway for home. The Northeast remains disrupted from the nor’easter that buried the region in snow this week.
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