The possibility of another round of fiscal stimulus should be on both shippers' and carriers' minds. The unemployment benefits that have been holding up consumer spending and much of the economy expire today. The current expectation is that the $600 in extra unemployment compensation per week will be reduced to $200 and thereby likely result in at least modestly less consumer spending and freight demand. Republicans and Democrats are reportedly far apart in terms of what they want, but rapid passage will be important. The chance of a decision not to extend these benefits is our main worry for freight volumes in the short term. 

Besides the expiration of federal benefits via the CARES Act, there is little evidence that leads us to believe freight volumes will fall off significantly in the coming weeks. The threat of lockdowns created a panic-buying situation in March, then freight volumes plummeted because the majority of businesses were closed. Now, regions are going back into lockdown but the restrictions are less severe. The sectors being locked down are predominantly service-based industries that do not move a large percentage of the nation's freight. Consumer demand remains fairly strong given that economic backdrop. Despite this, we do not believe the typical seasonal decline will be as pronounced this year. Carriers remain in a wonderful pricing position. 

The supply-demand dynamic of May, June and July has been much different than March and April. During March we saw volumes and rejections rise in stepwise fashion to all-time highs in a matter of weeks. This time around the rise in freight volumes and tender rejections has been slower but consistently upward and gradual. As a result, it has taken longer for carriers to gain the confidence to reject contracted loads in favor of spot market options, but this dynamic could be changing.

Another difference in this tightening environment is that volumes will remain elevated for some time, unlike in April when volumes plummeted to holiday levels due to nationwide lockdowns. We should expect to see tender rejections in the double-digit range as long as volumes remain elevated — all signs point to this happening, especially if another round of stimulus is announced. From a capacity standpoint, carriers are in the best position of 2020 right now. Carriers are rejecting loads at a higher clip than at any point since the summer of 2018. 

This week's jobs news was slightly disappointing again relative to the improved momentum and change in tone we had seen in recent weeks and months. Initial jobless claims came in at 1.4 million last week, which was slightly better than consensus expectations of 1.5 million but marked the second straight week jobless claims rose, breaking the prior 15-week downtrend. Continuing claims (a rough proxy for unemployment) climbed by 867,000 to 17 million. If one is looking for green shoots in the report, jobless claims in Florida and Georgia (two Sun Belt hot spots) actually ticked down this week.

Turning to consumer spending as measured by Bank of America weekly card (both debit and credit) spending data, total card spending in the latest week (ending last Saturday) was actually up 0.5% year-over-year. This is a slight deceleration compared to last week but is well off the ~40% declines from late March and early April. As we usually note, keep in mind there is a beneficial mix shift from cash to debit ongoing that is somewhat inflating these numbers. One can tell this is the case from the fact that debit card spending is currently running up double digits year-over-year and far outpacing credit card spending, which is down in the mid-teens range year-over-year.

There were several main takeaways from the card spending data this week. Card spending in states that reopened later and where the COVID-19 case count is flattening or falling are seeing higher spending than states where the opposite is true, although the difference is narrowing, which is a good sign. Online retail spending resumed its torrid pace, climbing by 77% year-over-year this week. Finally, lower-income consumer spending is running higher than middle- or high-income spending — due to the generous unemployment insurance and stimulus more than replacing pre-COVID incomes for this cohort. This represents a major risk to both the economy and freight volumes as the expiration date for the extra unemployment insurance and benefits is today; the current talk in Washington is for $200 extra per week instead of the current $600, though Republicans are aiming for only 70% income replacement. In any event, the amount of unemployment insurance extended to over 16 million people is likely to fall at least slightly in coming weeks and will have a negative flow-through impact on the U.S. economy measured in billions of dollars.