A series of unexpected shocks left the Canadian economy reeling in 2003 and that had a negative effect on shipment volumes that was felt well into the third quarter.Despite a 5.2% jump in manufacturin...
A series of unexpected shocks left the Canadian economy reeling in 2003 and that had a negative effect on shipment volumes that was felt well into the third quarter.
Despite a 5.2% jump in manufacturing shipments in September, third quarter shipments were still down 0.4%, following a 3.9% drop in the second.
There is reason to hope for a strong rebound, however.
The first cause for optimism, particularly for the many mid-sized and large carriers that haul into the U.S., is the strong rebound of the American economy in the third quarter. The 7.2% GDP growth reported by the U.S. Department of Commerce marked the fastest pace of growth for the American economy since 1984 and sailed past what were already optimistic forecasts for the quarter. Even though most forecasts call for a pullback in the fourth quarter, the full year growth for the U.S. economy is still expected to come in at a healthy 4%.
As Peter Sacks of Toron Capital Markets points out , the U.S. “is the one economy that has shown time and again that it can turn around on a dime.”
Controlling almost 66% of Canada-U.S. trade, trucking is perfectly positioned to reap the benefits of an upsurge of exports to a revitalized U.S. market. Both merchandise exports to and imports from the U.S. market were up in September, recovering most of the declines experienced in August largely due to the power blackout in Ontario and the northeastern U.S., the latest (and hopefully final) shock for the Canadian economy in 2003. Canadian exports rose by 4.7% in September while imports rose 4.5%, according to the latest available Statistics Canada figures.
While almost half of the export jump in September stemmed from increased activity in the automotive sector, all industrial categories showed healthy gains going into the fourth quarter.
Of course, there is still concern about the impact of the high Canadian dollar on Canadian exports. But, according to money market analysts such as Sacks, those concerns should be alleviated within a few months.
“The trick is to survive the current bubble. By the first quarter of 2004 the Canadian dollar will fall to or below 75 cents U.S. Things will be a lot easier then,” Sacks predicts.
Certainly the domestic situation heading into the final quarter of 2003 and beyond is looking much improved.
The composite leading indicator rose 0.8% in September and 0.6% in October. That made for five straight months of improving economic conditions. Retail sales advanced 1.1% in the third quarter, after remaining essentially unchanged in the second (-0.1%). Wholesalers saw a slight decline (0.2%) in their sales in the third quarter but finished the quarter strong with a 6.1% increase in September. Of particular interest to carriers is the fact that manufacturing shipments in September soared to $43 billion, their highest level since March. And the increase was broadly based, as 17 of 21 manufacturing industries, representing 84% of total shipments, reported increases.
Manufacturers were also optimistic about their business prospects going into the fourth quarter. In October, 34% of the almost 4,000 manufacturers responding to Statistics Canada’s Quarterly Business Conditions Survey stated they would increase production in the fourth quarter, while 16% expected to decrease production. This marked the highest positive balance since April 2000. Part of their optimism stems from the fact that in September unfilled orders (the stock of orders that will contribute to future shipments) posted their first increase (1.1%) in over a year.
Carriers hauling for companies serving the primary metal, transportation equipment and food industries should be particularly bullish on shipment growth as these industries were the most optimistic about cranking up production.
Manufacturers spent much of the second and third quarters of 2003 cutting back on their inventories. They trimmed another 0.7% in September, marking the fifth consecutive decline. In fact, heading into the final quarter of the year, manufacturing inventories in Canada were at $60.9 billion, the lowest level since April 2000, according to Statistics Canada. That would indicate that there is room for manufacturers to begin rebuilding their inventory levels as the U.S. and Canadian economies rebound, which of course will contribute to shipment level increases.
Already by September stronger shipment activity coupled with the lower inventories mentioned was contributing to a notable drop in the inventory-to-shipment ratio, a measure of the time that would be required in order to exhaust inventories if shipments were to remain at their current levels.