August 2020 Volume 2

COVER STORIES

street, and rapid transit cars and car equipment for operation on rails for freight and passenger service; and (3) manufacturing rail layers, ballast distributors, rail tamping equipment and other railway track maintenance equipment. Index, 2012 = 100. Not seasonally adjusted. Source: Federal Reserve Board. Heavy Truck Monthly US Heavy Duty Truck Production for June was down 58.4% from June 2019. This comes on the heels of a remarkable 92.6% contraction in April and 77.0% contraction in May relative to respective year-ago levels. Like the auto sector, the heavy truck market has been hit particularly hard by COVID-19 on both the supply (positive tests for COVID-19 at manufacturing facilities) and demand (reduced economic activity and associated impact on surface trade) side. We expect early-2021 lows for both annual average Production and the annual rate-of-change. The severity of the contraction will likely exceed the expectations we outlined in the April article and come in more on par with the Great Recession, which saw 37.9% contraction at the trough. Production is likely to be below the pre-pandemic level through at least the end of 2022.

Definition: Monthly count of drilling rigs actively exploring for or developing oil or natural gas in the United States, Canada, andMexico. Rigs are considered active when they are on location and turning to the right. The active rig count acts as a leading indicator of demand for products used in drilling, completing, producing and processing hydrocarbons. Source: Baker Hughes. Not seasonally adjusted. Rail Monthly US Railroad and Rolling Stock Production rose in May and June off a tentative April low. However, June Production was still 6.8% below the year-ago level. The macroeconomic leading indicators generally suggest that business cycle decline in Production will likely extend into about mid-next year. Weekly US Intermodal Rail Traffic is recovering, with the latest week down 1.7% from the same week one year ago as opposed to the roughly 20% week-over-week decline of late March and early April. This suggests that there may be some small green shoots forming in the industry, but we need more definitive movements in the data to say more about the future recovery trend.

Definition: This industry comprises establishments primarily engaged in (1) manufacturing heavy duty truck chassis and assembling complete heavy duty trucks, buses, heavy duty motor homes, and other special purpose heavy duty motor vehicles for highway use or (2) manufacturing heavy duty truck chassis only. Includes trucks weighing 14,000 pounds or more. Index, 2012 = 100. Not seasonally adjusted. Source: Federal Reserve Board. Defense US Defense Capital Goods New Orders represent one of the few markets for which the annual trend is above the year-ago level. Our clients and the FIA member we interviewed continue to note this sector as an area of opportunity. But for a brief period of decline around year-end 2021, we expect general growth in annual New Orders through at least 2022.

Definition: This industry comprises establishments primarily engaged in one or more of the following: (1) manufacturing and/or rebuilding locomotives, locomotive frames and parts; (2) manufacturing railroad,

FIA MAGAZINE | AUGUST 2020 9