Manufacturing and retail post strong seasonally adjusted gains.
A Federal Maritime Commission judge this week ruled that chassis agreements requiring motor carriers to use specific chassis providers violate the Shipping Act of 1984 in situations when an entity other than the ocean carrier is paying for use of the equipment. The initial decision of Chief Administrative Law Judge Erin Wirth might not be the last word on the matter, however, as an appeal to the FMC itself would appear likely.
The summary decision stems from a complaint filed in August 2020 by the Intermodal Motor Carriers Conference of the American Trucking Associations against the Ocean Carrier Equipment Management Association, Consolidated Chassis Management LLC, and 11 ocean common carriers. IMCC argued that requiring motor carriers to use OCEMA-member default chassis providers for merchant haulage movements was an unreasonable practice in violation of the Shipping Act.
The initial decision hands IMCC a big victory, but motor carriers did not get quite everything they wanted. IMCC had also asked that the judge invalidate the concept of a default chassis agreement whereby motor carriers would be assigned to a presumptive chassis provider in the absence of a preference otherwise.
“The assignment of a default provider where a motor carrier does not have another preference may serve the interests of the shipping public by ensuring that a system is in place to efficiently assign chassis to containers and incentivizing the efficient flow of cargo,” Judge Wirth said.
The near-term practical effect of the judge’s order is not yet clear as IMCC must propose steps to translate the decision – assuming it is upheld – into specific relief. IMCC is expected to purse the establishment of a “pool of pools” that will allow chassis choice for merchant haulage. The judge said it was unclear whether IMCC planned to seek reparations for past violations of the Shipping Act. The initial decision and other filings in the case are available at https://www2.fmc.gov/readingroom/proceeding/20-14.
As required by Congress in last year’s Ocean Shipping Reform Act, FMC in conjunction with the Transportation Research Board has begun to study and develop best practices for intermodal chassis pools. Congress required FMC to publish those best practices by April 2024.
Industrial production and manufacturing
Industrial production was flat m/m on a seasonally adjusted basis, but it would have been much stronger absent a swing from an unseasonably cold December to an unseasonably warm January. That dynamic resulted in hit of just under 10% for utilities output. The other two major IP sectors – manufacturing and mining – posted solid m/m gains.
Manufacturing output in January rose 1% after notable declines in both November and December.
The gains were broad-based as durable manufacturing output rose 0.8% and non-durables output increased 1.1%. The 0.5% rise in automotive output was not especially strong, but it followed drops of 3.7% and 1.7% in November and December.
Like manufacturing, the 2% increase in mining output followed two straight months of notable declines. Most mining sectors saw gains with oil and gas drilling being a notable exception. IP and manufacturing output in January both were 1.2% ahead of the pre-pandemic month of February 2020. Mining output is down 0.5%.
Retail and food service sales
After two straight months of 1.1% decreases, retail and food service sales in January jumped 3%, seasonally adjusted, to the highest level ever in current dollars. The increase is the sharpest since March 2021, which was when the third round of pandemic stimulus payments were disbursed. The January increase was the sixth largest on record. All other larger gains occurred during the pandemic except for the 6.7% jump in October 2001 following the September 11 terrorist attacks.
One theory for explaining the spending spurt is cost of living adjustments (COLAs) that kicked in during January for government benefits and for wages at many U.S. employers. Because many COLAs are linked to the Consumer Price Index, many Americans saw a notably larger increase in income than they typically see in January. If higher COLAs were the principal factor, January’s spike could prove to be a one-time event.
Every retail sector saw at least a marginal increase m/m except for gasoline stations where sales were flat. Department stores saw the largest surge by far at a 17.5% spike, seasonally adjusted. The next largest increase was a 7.2% gain in food services and drinking places, followed by a 5.9% increase for motor vehicle and parts dealers.
Retail and food services sales fell sharply on a not seasonally adjusted basis as they always do during January, but the 16.2% m/m drop was the second smallest on record for a January. The only January that performed better was January 2021 with a 15.5% decline following the disbursement of the second round of pandemic stimulus at the end of December 2020. The historical average for unadjusted decreases in January is 21.5%.
Given very weak imports and recent declines in manufacturing output, strong retail sales likely meant a significant draw-down of retail inventories in January. With weak sales in November and December, inventory data released this week showed an increase in inventories relative to sales in most retail categories during December.
Residential construction
A m/m decline in January from a downwardly revised December estimate resulted in a rate of housing starts that was the lowest since June 2020. Housing starts fell 4.5%, seasonally adjusted. Moreover, the revised December decline was a full two points larger than the initial estimate, although that drop was from an upwardly revised November figure. The 1.3 million annualized starts in January were 16.7% below February 2020.
Starts fell m/m for both single-family homes and units in multi-family buildings with five or more units. Single-family starts in January were 19% below February 2020. Multi-family starts were down 11.1%. Permits authorized for future construction were stable in January, ticking up 0.1% from an upwardly revised December estimate. Single-family permits declined 1.8% and were nearly 28% below February 2020 levels. Multi-family permits ticked up 0.5% and were nearly 38% ahead of February 2020.
Consumer Price Index
After two months of small gains that resembled the pre-pandemic environment, consumer inflation accelerated m/m in January as energy prices rose and food and shelter saw gains as well. The all-items Consumer Price Index increased 0.5% m/m following 0.2% and 0.1% gains in November and December. However, those months’ cooler pricing was driven largely by falling prices for gasoline and other energy products.
The Bureau of Labor Statistics said that the shelter index was by far the largest contributor to the all-items index gain even though it saw a marginal deceleration in m/m growth at 0.7%, down from 0.8% in December. Consumer inflation in services in general is remains elevated while inflation in commodities aside from food and energy moderated.
The 12-month change in the all-items CPI edged down to 6.4% from 6.5% in December. The 12-month change for services ticked up to 7.6% while the change for commodities less food and energy declined to 1.4%.
Excluding food and energy, the CPI held steady at a 0.4% gain m/m. The 12-month change was 5.6%, down from 5.7% in December.
Producer Price Index
Pricing at producer level in January saw its largest increase since June, driven mostly by increases in energy prices. The Producer Price Index for final demand rose 0.7%, a swing from the -0.2% dip in December also due mostly to energy. The 12-month change moderated to 6.0% from 6.5% in December. The index for final demand less foods, energy, and trade services rose 0.6%, which is the largest advance since March. The 12-month change was 4.5%, down slightly from 4.7% in December.
The PPIs for most freight transportation sectors declined with the notable exception of LTL, which rose 2.1% after a 3.6% drop in December. General freight truckload fell 3.3%, and long-distance specialized eased 0.9%. The rail intermodal PPI fell 2.4%, essentially matching the December decrease. The freight brokerage PPI was down 4.8%.
A notable development in transportation equipment was a 1.4% drop in the trailer PPI, matching July 1989 for the largest m/m drop on record. The PPI for truck tires continued to rise as it has done in all but two months since March 2021.
Mortgage rates
Following nearly three months of declines or only marginal upticks, mortgage rates in the latest week rose by two-tenths of a point, which is the largest weekly increase since mid-October. The average rate on a 30-year fixed-rate mortgage was 6.31%. Freddie Mac suggested that stronger-than-expected economic indicators were a factor.
Mortgage rates
The national average price of diesel fell 9.5 cents to $4.444 per gallon during the week ended February 13 for the largest weekly drop since the week ended December 19. Diesel prices were down in all regions, led by de-creases of 10 to 12 cents in some of the largest regions for fuel sales – the Midwest, Gulf Coast, and Lower Atlantic. The only region other than California where diesel is still above $5 a gallon on average is New England, where the average price is $5.054. Nationwide, diesel prices are their lowest since the week ended February 28 of last year just as Russia invaded Ukraine. Barring an extraordinary development, diesel will be lower y/y within a few weeks.
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