For those investors that have relentlessly defended equity valuations, shunning hard data in favor of the Fed narrative that lower borrowing costs should move discount rates ever closer to 0% and equity valuations therefore ever closer to infinity, might we suggest you turn your heads now because Class 8 truck orders just dropped a huge dose of economic reality that you might want to promptly ignore.
For everyone else, July Class 8 trucks orders were, in a word, abysmal. According to ACT research, Class 8 truck orders for July came in at 10,500 which is down 57% YoY and 19% sequentially compared to June. July marked the 17th consecutive month of YoY declines and the lowest reading since February 2010. Perhaps even more shocking is the fact that July orders were 77% lower than the peak shipping month recorded in October 2014.
According to comments made by Dan Ake, VP of Commercial Sales at research firm FTR, to the Wall Street Journal the industry was hit with “several significant order cancellations” which was described as “uncharacteristic” for this time of year. Dan added that the “high cancellations are likely the result of fleets placing large orders at the end of 2015, for delivery a year out.”
Steve Tam, VP at ACT Research, added that:
“Too many trucks [are] chasing too little freight. I think the trucking community had an expectation that [growth] was going to continue. But with 20/20 hindsight, that did not happen. Freight has been very flat for basically the last year. There is anecdotal signs that freight is improving very modestly, but I would liken it to treading water but still below surface at this point.”
As we noted last month in our post entitled, "Domestic Trade Is Disintegrating: Heavy Truck Orders Plunge To Lowest Since 2010," it's hard to fathom how the equity market can continue to shake off hard evidence of deteriorating domestic freight shipments. As can be seen below, data published by the Department of Transportation clearly shows that freight shipments in the United States peaked in December 2014 and have been on the decline since. Given the significant truck order cancellations in July clearly Class 8 truck OEMs don't foresee traffic improving at any point in the near future. That said, data doesn't really matter...until it does, of course.