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The Open Road Hits High Speed

Freight Update Video | August 2020


The disconnect between Wall Street and Main Street has spread to the open road.

As the economy sunk into a deep recession in April and May, stock markets rallied fueling the perception of a chasm between the financial sector and what many people were experiencing in their daily lives (what economists call “the real economy” — not because it is any more or less “real” in common usage, but because it involves the production and consumption of tangible goods and services). 

By July, the same could be said for the freight economy. Even as unemployment hovered just shy of record highs, there was very strong demand to move goods by truck. Retail sales and factory output data published today by the Census Bureau and Federal Reserve Board illustrate this strength.

Consumer spending posted another month of growth, coming on the heels of June’s retail frenzy. Nonstore (mostly online) and grocery sales held at high levels, respectively up around 25% and 10% year-over-year. Sales at discretionary outlets such as garden supplies and sporting goods stores also showed a second month of surprising strength, while clothing stores and food service establishments improved but are still well below pre-crisis levels.

On the factory side, output increased — but the metric to watch is capacity utilization: The extent to which factories are able (or not) to return to pre-crisis levels of utilization will signal longer-term supply chain constraints. For most manufacturing sectors, capacity utilization increased from June but also appears to be plateauing. (The industrial sector, which remains furthest below pre-crisis capacity, continued to post strong gains.) Overall, it appears that the public health precautions associated with the pandemic have shaved about 5 to 10 percentage points off from factory utilization.

Similar to March, July felt like two different months combined into one. The exuberance of reopening during the first half of the month, followed by a creeping fear of new viral outbreaks during the second half of the month. This naturally begs the question of which direction August will take. 

There are important reasons to believe that consumer spending is moderating: The hangover from June’s consumer frenzy compounded by waning fiscal support. The reality is, we’re not seeing that in truckload demand from the companies that Convoy partners with — at least not yet. It’s likely that demand has been propped up by a wave of natural disasters during the first half of the month: A major hurricane on the East Coast and wildfire hotspots across the West pushed up shipments of nonperishable foods and bottled water in Convoy’s network. Factory capacity utilization is also stabilizing as businesses adapt to the new operating reality.

Regardless of the reasons, it increasingly feels like there’s a disconnect between how many people feel about their economic prospects and market conditions in some corners of the economy. Sooner or later, something will have to give.

View our economic commentary disclaimer here.

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Aaron Terrazas is Director of Economic Research at Convoy where he researches and comments on freight markets and what freight reveals about the broader economy. Prior to joining Convoy, Aaron was a Senior Economist and Director of Economic Research at Zillow. Before that, he was an Economist at the U.S. Treasury Department’s Office of Economic Policy in Washington, D.C. He was educated at Georgetown University and Johns Hopkins University. Aaron has been a runner since age 13 and is a sucker for all endurance sports.