From the October 2016 issue of Heavy Duty Trucking
Fleets attending the FTR Transportation Conference in Indianapolis last month wanted to know: When are things are going to get back to normal?
When are truck freight levels, pricing and even the economy going to be at the level we are accustomed to seeing?
The good news is that a recovery for freight and the overall U.S. economy is in the cards for the fourth quarter of the year, Daniel Meckstroth, chief economist with the industry group the Manufacturers Alliance for Productivity and Innovation, told attendees.
The bad news is it’s not expected to be a huge boom.
After a long while, July showed “the first indication that the manufacturing inventory-to-sales ratios are falling” after higher levels hurt freight shipments earlier in the year. The July level is also the lowest in about two years. And inventory cycles, such as the high one manufacturing has experienced lately, are usually short. When they are over, you typically see a spike in production, he said.
High inventories have been a drag on economic activity as well as freight movements, but now they are coming into closer balance. This results not only in better sales of manufactured goods but others as well, resulting in an improvement in the general economy.
Helping this along is the ever-resilient U.S. consumer, who accounts for about 70% of all U.S. economic activity. “Consumers are keeping us out of a recession,” Meckstroth said. “We are in a jobs boom, with the percentage of new jobs being adding being much faster than overall economic expansion.
“It’s new jobs creating new income…that’s what’s propelling the U.S. economy right now,” he explained.
However, there are still other problems lingering that will keep both trucking and the economy from seeing better times. One of those is a dramatic slowdown in world trade, which has depressed U.S. economic growth.
“If you go back 20 years before the last recession, trade was growing two to three times the rate of the global economy. Now it’s growing slower than the growth of the global economy,” he said. “We’re not seeing globalization anymore. We’re seeing deglobalization.”
As a result, he said, expect only “modest” growth, or as he called it “the new normal” in both the economy and trucking.
Some of those factors could even lead to a mild recession within the next few years. FTR Transportation Economist Noel Perry told attendees it be prudent to prepare for that possibility. As he explained it, the current recovery from recession is one of the longest since 1950, and it has been one of the weakest.
The reason he and others see a recession in the next two or three years is simply the growth of the overall economy has slowed.
According to Perry, if there is a recession, trucking can expect to see business decline by 5% to 6%, with rates falling about the same amount. For comparison, in the last recession the declines were much larger, around 15% – meaning the next recession, if it happens, will be much milder.
While neither Meckstroth nor Perry offered the news of “back to normal” trucking is hoping for, it shouldn’t be surprising. The Great Recession was anything but normal. It left a bigger than usual hole for trucking and the economy to climb out of, making this recovery anything but what we’re used to seeing. Add to that the changes in the global economy, generationally and technologically driven changes in how and what people buy, and more, and it’s no wonder a “new normal” is part of the trucking and economic landscape.