At the beginning of November we got the ISM Manufacturing Index results for last month that showed that the strong manufacturing segment is continuing. In the middle of last month we got the official September Industrial Production results from the Federal Reserve. While August was notably negative, the September numbers were once again in the positive category. The ISM numbers indicate that the positive results should continue in October when we get the final Industrial Production results in about a week.
The August report was impacted by the Houston shutdowns leading up to Hurricane Harvey. Likewise, September included negative impacts from Hurricanes Harvey and Irma, but also the resumption of activity – plus some additional demand due to recovery efforts.
Let’s key in on a couple of important segments to trucking and see what the results tell us.
As you can see in the chart above, mining activity slowed after a very, very strong start to 2017. Results were negative as we prepared for Hurricane Harvey, but we quickly returned to form in September. There is some upside potential as rebuilding efforts produce additional demand for sand and gravel. Significantly strong results are awaiting higher oil and gas prices that would induce further action in the shale fields.
Durables are the biggest component of manufacturing and this segment slowed noticeably during the 2nd quarter. Despite the hurricane events, growth was positive in both August and September. The surge in September is a positive move as we head into the final quarter of 2017; however, stronger gains here may be limited by the automotive sector which is already running at a fairly strong clip.
Non-Durables are the exception for September – results were significantly more negative than we saw in August. The biggest reason is that the Houston and southeast Texas region is home to the biggest segment of chemical manufacturing (including oil refining). Recovery here has been delayed since the concentration of Hurricane Harvey’s impact was directly over this production segment. Output was slow to ramp up following the hurricane. We look for recovery to show in the October data.
Stone, Clay, and Glass Products
If you are looking for a near-term bright spot due to Hurricane rebuilding efforts, you can clearly see it here. The need for home remodeling and rebuilding is obviously driving additional output in this segment. How long can this type of surge last? Not for too long, but some sustained high levels of output is certainly part of the reason for the tightening of truck capacity over the last couple of months.
While spot market activity is returning to “normal” (but still quite strong), the contract markets are now showing a more significant adjustment. It took a couple of extra months, but tight markets eventually impact all of trucking.