Economic growth stimulates demand for freight; The COVID variant creates “strangers”
The trucking industry has benefited from a growing economy, but some headwinds persist like inflation and the pandemic, an industry economist has said. Yet another economist said when freight demand slows, the industry should have enough engines to meet the demand.
In a recent webinar, Bob Costello, chief economist of the American Trucking Associations business group, provided economic forecasts and updates on the trucking industry. He qualified his projections based on existing trends without considering how the new COVID variant might affect them.
“It increases the unknowns in the short-term outlook,” he said. “But in the longer term, I think we’re going to be dealing with this sort of thing in the next few years and possibly beyond.”
He said GDP has historically grown by around 2% per year, and this year, 2022 and 2023, he expects GDP to be higher than that.
“We’ve put a lot of money into this economy, and it’s an economy that’s starting to grow again and come out of a deep recession,” Costello said. He added that the labor market is an indicator of consumer spending and people spend more when the market improves. And it is improving but has not returned to pre-pandemic levels.
The unemployment rate fell to 4.2% in November, from 4.6% in October. The rate has continued to decline from a peak of 14.8% in April 2020. The rate was 3.5% in February 2020.
Costello noted that the participation rate remains low and compared it to Germany’s rate which has risen by almost 5 percentage points over the past 20 years, while the US rate has fallen to about the same. same rate over the same period. The rates in both countries have reached almost the same level at around 62%.
“I think there is less stigma on blue collar work and not pushing everyone to college,” he said of the trend in Germany. “It’s something that we have to face as a society. “
He said retail sales have grown by almost 20% so far this year, compared to the same period last year. He explained that shoppers are returning to stores, but that hasn’t reduced e-commerce.
“It’s because people have more money in their pockets, even those who lost their jobs during the pandemic,” he said. “We had stimulus funds and now we have child tax credits. It helps people spend more money… It means there is more money to buy the products that the industry carries, and that is ultimately a good thing.
He expects retail freight to remain strong while merchandise sales remain strong in 2022. He cited the low inventory-to-sales ratio as the reason why freight demand would continue to be strong. Even if sales slow early next year, retailers will need to stockpile to return to pre-pandemic levels, he noted.
SUPPLY AND INFLATION PROBLEMS
Meanwhile, new housing starts are also strong, with more single-family homes built this year than any year since 2006, Costello said, adding that the pace of new home construction has slowed due to the constraints. of supply and not of lack of demand. The construction industry faces constraints in the supply of labor and materials. He expects new home construction to decline slightly in 2022, starting this year. But he said the construction industry would likely benefit from the $ 1.2 trillion infrastructure law that Congress recently approved.
Another sector that has been strong this year is manufacturing, even amidst supply chain challenges, he said.
Inflation is one of the risks to the economy. It rose 6.2% in October, compared to the same month in 2020, and Costello expects it to get worse in the near term, reaching over 7% in the coming months. As a result, he doesn’t expect the Federal Reserve to hike interest rates anytime soon, but will ease asset purchases. The latter is expected to end by the second quarter of 2022, which could lead to interest rate hikes, he said. The rise in inflation can be attributed to the supply of products and labor which is unable to keep pace with demand for products and labor, he explained. However, by the end of 2022, he expects inflation to be closer to 3%.
RESPOND TO THE REQUEST
Costello said freight demand has been strong, but contract carriers are struggling to keep up with demand. As a result, shippers are turning to the spot market to meet demand.
In October, ATA’s seasonally adjusted leasing truck tonnage index increased 0.4% from September. In the first 10 months of the year, tonnage is up 0.1% compared to the same period in 2020.
“Economic growth remains on solid footing, which is good for road freight volumes going forward,” Costello said. “The biggest problem in the industry is not the quantity of demand, but the guarantee of an adequate supply. It is good to see that the fleets have been able to carry more tonnage in recent months in the face of a limited supply. “
He said full truck haulers have reduced their number of trucks because they unable to find drivers, and the prices of used trucks have gone up. In addition, independent contractors, or owner-operators, who have worked with fleets are turning to the cash market.
In another webinar, Aaron Terrazas, director of economic research for Convoy, explained that owner-operators who could have retired before the pandemic or when it appeared, have started to return to the industry.
“It’s difficult to hire quality truck drivers right now,” he said. “There is a lot of competition for them… It is difficult to hire workers to meet the current level of demand. “
Terrazas said the current level of demand is exceptional due to the holiday spike, the impact of the pandemic on the economy, and fiscal and monetary policy.
“At some point the demand will go down,” he said. “And it is highly likely that once demand declines, there will be enough drivers to meet that level of demand.”
He said that when growth starts to slow, it will happen in the owner-operator segment, as this is where job gains have been the largest in the past year.
Terrazas also provided a forecast for the holiday shopping season and through to 2022. He expects holiday spending this year to be flat or up 1% from 2020. He cited shopping in advance, declining consumer confidence in large purchases and high gasoline prices as factors affecting spending. . He noted an estimate that high gas prices are expected to reduce global GDP growth by 1-2% this year.
Terrazas said he was surprised at the increased spending at restaurants and bars as travel remains down from pre-pandemic levels. He explained the impact of business travel on spending, and if travel were to return to pre-pandemic levels, that could contribute to an additional $ 19 billion in spending on restaurants and bars.
For 2022, Terrazas said he expects more truck breakdowns as drivers drive older trucks amid a tight supply of new trucks due to semiconductor shortages. Plus, as more young drivers hit the road, he expects crash rates to rise next year.