Weekly Transportation Update: Industrial Production Weaker As Automotive Drives Retail Inventory Growth

Key Takeaways

• Data revision shows weaker industrial production.
• Real consumer spending ease a bit in February.
• Auto inventories see a strong gain in February.
• Mortgage rates fall for a third week.
• Diesel prices fall for the eighth straight week.
• EPA grants California waivers for vehicle rules.
• Trucking spot rates and volume change little.
• Intermodal weakness remains firmly in place.
• Rail carload volume bounces back.
• Rail faces economic and regulatory uncertainty.

Overview

This week was not especially heavy with new economic indicators. The most significant development was a revision of industrial production data that had already been released.

The banking situation still has the U.S. on edge. One concerning development was a big shift in deposits to larger banks from smaller ones, apparently due to worries about bank insolvency.

During the week ended March 15, deposits at the top 25 domestically chartered commercial banks rose sharply while deposits for smaller banks fell by the most ever in a single week.

Industrial production data revision

The Federal Reserve this week released its annual benchmark revision of industrial production data, and the changes show that the sector was weaker during the pandemic than previously indicated.

The changes in overall IP were not large in any single year during the pandemic, but they were more significant in certain areas. Overall IP declined 7.2% y/y in 2020, down from 7.0% previously. The 2021 increase was 4.4% y/y, which was weaker than the 4.9% gain in the prior data. Similarly, IP rose 3.4% in 2022 rather than 3.8%.

Revisions in manufacturing output were in a similar range, though the difference in 2021 was notably larger. Manufacturing output fell 6.6% y/y in 2020 rather than the 6.3% in the prior data. The 2021 rebound was 5.0% rather than 5.7% as previously indicated. Output was up 2.9% in 2022 instead of 2.7%.

Individual manufacturing sectors saw more notable changes. For example, while motor vehicle and parts output did not change much in 2020, the rebound in 2021 was 7.1% rather than the 9.0% that had been reflected in the prior data.

Consumer spending

Consumer spending adjusted for inflation in February eased 0.1%, seasonally adjusted, as spending on both goods and services declined by that same degree. Overall spending was 7.9% above the pre-pandemic month of February 2020.

Within the goods category, real spending on durable goods declined 1.2% after an upwardly adjusted surge of 6.8% in January. Real spending on durable goods was 28.2% higher than February 2020 and aside from January was at its strongest level since May 2021 when consumers were still spending their third round of stimulus.

A 0.5% increase in real spending on nondurable goods, which is a larger category than durable goods, mostly offset the decline in spending on durable goods. Real spending on durable goods was 11.3% higher than February 2020 and at its highest level since January 2022.

The personal savings rate in February was 4.6%, which was an improvement over the revised 4.4% in January but lower than the preliminary 4.7% estimate for that month. The savings rate is still well below the 7% to 8% typically seen before the pandemic, but it is up from levels during most of 2022.

Retail inventories

Current-dollar retail inventories of motor vehicles and parts rose 1.9% in February for the largest m/m increase since September, according to advance estimates from the Census Bureau. The sharp increase bolstered total retail inventories, which were up 0.8% – the strongest gain since August.

Excluding motor vehicles and parts, retail inventories rose 0.4%, which is the largest increase since August. Until February, current-dollar retail inventories excluding automotive had either declined or held flat for five straight months.

Mortgage rates

The average rate on a 30-year fixed-rate mortgage fell a tenth of a point to 6.32% for the third straight decline after five weeks of increases. Freddie Mac attributed the recent declines to continued economic uncertainty. Declining rates are generating more interest from buyers, it said.

Diesel and petroleum prices

The national average price dropped 5.7 cents to $4.128 a gallon during the week ended March 27. Prices were down in all regions. Over eight weeks, diesel has fallen more than 49 cents a gallon. Diesel is down nearly $1.06 y/y and more than $1.68 since hitting a record $5.81 a gallon in June.