While the overall economy grew at a steady rate in the second quarter, the transportation segment lagged behind as demand for goods and their subsequent transportation of goods was much weaker than in other sectors.
 - Image via Pixabay

While the overall economy grew at a steady rate in the second quarter, the transportation segment lagged behind as demand for goods and their subsequent transportation of goods was much weaker than in other sectors.

Image via Pixabay

While the overall economy grew at a steady rate in the second quarter, the transportation segment lagged behind as demand for and transportation of goods was much weaker than in other sectors.

Second quarter Gross Domestic Product figures show economic growth at 2.1% but the FTR estimates that the GDP Goods Transport Sector rose at a seasonally adjusted annual rate of just 0.5% in the same period.  For context, the GDP Goods Transport Sector grew by 3.2% in 2018 and 5.7% in 2017.

While growth is slow, part of the reason it feels so weak is that 2018 was such a positive year for the transportation industry, according to FTR. 

“It’s a slow growth environment now, but it feels worse than that because the freight markets were so extraordinarily hot in 2018,” said Eric Starks, FTR’s chairman and CEO. “However, while freight volumes are holding up as of now, most of the risks seem to be on the downside, especially with tariffs and the overall trade climate.”

Despite strong consumer spending, negative factors include mixed manufacturing activity, a weak construction market, a slight deceleration in job growth and damage to crops from the extensive Midwest flooding earlier in the year.

“After a couple of years of constant pressure on the transportation system we’re just in a more volatile and dynamic environment that requires shippers, carriers and intermediaries to be especially vigilant,” said Starks.

Interestingly, while exports are considered a positive metric for calculating GDP, imports are counted negatively. This partly explains why Q4 2018 GDP was only at 1.1% as a surge of Chinese imports hit U.S. shores ahead of a Jan. 1, 2019, tariff increase. The transportation sector obviously benefits from both exports and imports, so while GDP for the Goods Transport Sector was not strong in Q4 2018 either, it outpaced overall GDP at 1.8%.

FTR did find some encouraging news for freight demand outlook in the second quarter. There was a decline in inventory in the quarter and while inventories count positively for GDP, they tend to depress future freight volumes, according to FTR.

When FTR excluded the impact of inventories, GDP for the Goods Transport Sector in Q2 2019 rose at a SAAR of 2.0% over the first quarter, significantly better than the overall results indicate. Growth of 2% in GDP for the Goods Transport Sector is typically seen as the minimum level needed to keep the freight markets stable, according to FTR.

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