LAS VEGAS -- There is a lot of uncertainty about where the economy is headed, but there is reason for hope that it and business conditions for trucking are slowing improving.
That was the message Sunday afternoon at the American Trucking Associations’ Management Conference & Exhibition in Las Vegas during a session hosted by ATA Chief Economist Bob Costello and his guest Diane Swonk, analyst, founder and CEO of DS Economics.
According to Swonk, the American economy is at a “turning point,” meaning business conditions are expected to rebound from their current “subpar growth” for several reasons.
One, she said, consumers are “holding their own,” meaning they are continuing to spend, which helps drive a lot of freight movements. Two, job growth has been fairly strong, although Swonk believes there are still people sitting on the sidelines.
Costello said he expects job growth to decelerate at some point, while Swonk pointed out that the millennial generation (those who reached adulthood around the turn of the century) spend more money on services rather than products – a negative for trucking – and it won’t be at least until 2022 before this generation “gets over the hurdle of their student debt legacy” meaning they have less money to spend.
Add to this the fact that online shopping is growing by leaps and bounds, resulting in what Swonk called “shifting to this hybrid of bricks and clicks,” and millennials taking jobs once held by older, higher paid workers, and it’s no wonder why there is uneasiness about how some of these trends will affect trucking.
Even technology got some of the blame from Swonk for the economy not being in better shape. She noted in a good labor market, such as in 1999, “we'd be using technology to bring people into the labor market, but today we're using it to cut them out.”
Swonk cited a "dearth of investment" by companies as one reason for sluggish economic growth. "One of the most worrisome things is capital expenditures," she said. Many companies are opting to repurchase shares or issue dividends rather than invest in the future, she said. Nevertheless, she does think manufacturing is coming back.
Swonk is also "somewhat bullish on the energy sector." Increased productivity is bringing down the break-even point of crude oil where U.S. companies can make a profit in more-expensive fracking and horizontal drilling operations. Oil prices, she said, are "moving into a sweet spot" where they're high enough for oil companies to start investing in U.S. operation again, but gas prices are still affordable enough for consumers to keep spending and to be able to take jobs they must commute to. "I think we're going to stay betewen the $40 and $50 a barrel range for the enxt couple of years. We're already seeing investment pick up."
Looking more directly at trucking, Costello said the industry has seen soft volumes in 2016 due to bloated inventories and a weak manufacturing environment.
"The current cycle of larger than normal inventories has taken longer than usual to resolve itself," he said. "Coupled with weakness in the manufacturing sector, we've seen softer than typical volumes in both the truckload and less-than-truckload sectors. However, I am hopeful that we are nearing the bottom of this cycle and will soon expect a modest rebound."
Costello said both truckload and less-than-truckload carriers added truck capacity in 2015, which makes the current environment feel even more challenging. Smaller fleets, he said, added more capacity than larger ones.
"Also, truckload carriers have added trailer capacity of late, likely in advance of the approaching electronic logging device compliance deadline," he said. "More small and medium fleets will, I believe, try to compensate for the impact of ELDs by doing more drop and hook to reduce wait times."
While trucking and the economy aren’t seeing as good of times as just a couple of years ago, Swonk noted in this post-Great Recession environment the U.S. has still “recovered faster than any other country from a crisis like this ever.”
Fiscal policy is one problem area, and Swonk predicted that the Fed will raise interest rates before the end of the year.
"We're at a turning point," Swonk said. "There should be things kicking in, in a reasonable environment. But there's this external uncetainty about polkicy and where we're going. And it's not just the U.S.; it's global in scope." Some of the themes happening in this year's election campaign, she noted, are happening in Europe as well. "Populism and extremism are on the rise, nationalism, isolationism, this idea of closing down trade ... all of that is feeding into this hesitation in investment."
The problem, she said, is that it feels “as if we're all running in mud, and the mud is the uncertainties of the global economy and the slow growth."