FTR: Sluggish Economy Will Keep Truck Freight Flat

What an array of speakers made clear at the annual FTR Conference, held Sept. 10-12 in Indianapolis, is that macroeconomic indicators and truck-freight measures together point to an economy that is “balanced.” And not on a knifepoint: The economy is growing, but at a sluggish clip just strong enough to keep real GDP growth up near the 2% mark. That’s too slow for anyone to get comfortable with let alone relish, but it’s solid enough to preclude dipping into recession anytime soon.

But while economic activity drives the freight market, paying attention only to indicators of the economy’s overall health doesn’t tell the whole story when it comes to forecasting what’s ahead for trucking.

Or, as FTR Chairman and CEO Eric Starks put it, “You buy a truck to move freight.” He went on to point out that “manufacturing [output] is the lifeblood of trucking. Right now, [based on the ISM Manufacturing Index]. And to forecast Class 8 demand, manufacturing is in equilibrium— not seeing growth there, but no contraction either.” He said this performance will continue through the rest of the year and that he views these doldrums “more as a market correction; not a [manufacturing] recession.”

Don Ake, FTR’s vice president for commercial vehicles, said that if you “get deeper in the ISM Index, you can see the effect of the trade war— which means we have to get that settled to stay at our forecast” of steady, slow growth for the rest of 2019.

Starks said that the bellwether Chicago Fed National Activity Index, a monthly gauge off overall economic activity and related inflationary pressure, currently is “above vs. below trend and while still below a reading of zero, it’s saying the economy is struggling to grow, but some of the [downward] risk is starting to dissipate.

“The consumer continues to be resilient,” he continued, “but business investment has hit the pause button. The consumer keeps buying, but we need to see [the activity] of both pick up” to fuel growth.

Starks also said that inventory levels are “not a major concern” for truck tonnage, as historically they had been. In recent years, “just-in-time demand brought down inventories to a ‘new normal. The levels started picking up in 2015-16 and last year they came back a little and now they are up again. We think the e-commerce and omnichannel supply is driving this.”

As for what monthly truck loadings indicate, Starks said the freight market is “not in a downward spiral but is going up and is relatively healthy. And it’s getting back to what we expect it to be.” He noted that “spot market demand is still healthy, indicating stabilization and nothing abnormal. We are seeing more people going into the contract market.”

Add all that up and Starks said it means that “the truck freight market outlook will be flat through the rest of this year and through 2020.” As for freight rates, excluding fuel, he said “they’re easing after strong increases, getting back to the normal [levels] of 2014.”

Coming off several years of record Class 8 truck orders in the face of a now sluggish economy, it should surprise no one that that gravy train is slowing down. Per Starks and Ake, Class 8 production will top off at 353,000 for 2019, but demand will dip to 260,000 units in 2020 and to somewhere between 225,000 and 250,000 units in 2021. “This is a slightly optimistic forcecast,” said Starks. “It indicates Class 8 sales will be serving a replacement market for the next three years."