On a recent DAT Freight & Analytics show, we interviewed supply chain expert Professor Jason Miller from Michigan State University to discuss the outlook for the truckload sector in the coming year.
Question of the week: What’s your outlook for the next 18 months in trucking?
Jason Miller (JM): My best-case scenario for recovery would be the second quarter of 2024, with the rest of this year flat. Manufacturing activity seems to be in a trough, and there is softness everywhere; many areas are down year-over-year. These include the machinery, furniture, steel, plastics, and rubber sectors.
There is only a little wholesale trade. There’s still far too much inventory relative to sales in sectors like miscellaneous durables, apparel wholesale, and electronics – all pointing to a soft peak season for imports. So the best case scenario is we get into 2024, and the Federal Reserve starts to feel comfortable, lowering interest rates by 25 basis points. Then we’d need manufacturing and housing to pick up and inventories to be more right-sized.
One thing that has yet to get much attention is containerized exports. They’re down 15% to 20 % from where they were in 2021. We have to get that export piece back because that is a decent amount of freight volume from the factory to the docks.
Ken Adamo (KA): So you’re pegging a recovery into the second quarter. It’s probably a little more pessimistic than DAT’s estimate because we’re probably more in the Q1 timeframe.
JM: It’s hard to peg a recovery given that massive seasonal dip we discussed and why I want to avoid pegging it to a specific timeframe. The recovery may start in the first quarter, but it’s only when the Fed lowers interest rates that we will see business investment return, especially on the capital side. One wild card we’re dealing with right now is oil prices being as low as they are. We’re starting to see drilling rig counts steadily decline.
Dean Croke (DC): The housing market is vital to a truckload recovery, but an odd dynamic is occurring even though interest rates are the highest in 20 years. Can you speak to what’s happening right now?
JM: We have so many people locked into their existing homes with mortgages that average 2.8% that the housing inventory is so low overall. These homeowners are not going to move and lose those low-interest rates. So, the supply of existing houses is low, meaning that new builds are the only supply source right now. They’re a much more disproportionate source than normal. So paradoxically, higher interest rates support the new build market by keeping a supply of existing homes low because people don’t want to move.
DC: How resilient is the American consumer?
JM: One thing that got missed this time last year was everybody was talking about how consumers would run out of money and the economy would swiftly fall into a recession. And obviously, that has yet to happen for the economy as a whole. Yes, trucking has been in a recession since Q3 of 2022. But one thing that never gets brought up is how many of us refinanced our houses in 2020 and 2021, resulting in housing deflation.
The financial stimuli of the last few years were unprecedented contributors to consumer spending. Bank of America said checking account balances are still higher than in 2019 – despite 40-year high inflation. Based on some of the data and our own experiences, the common sense approach suggests that we aren’t going to run out of money. Retailers will be very cautious because they’re not entirely sure where the consumer is at right now.
KA: Is the pace of wage growth keeping up with inflation?
JM: Right now, the Atlanta Federal Reserve has a wage growth tracker showing the three-month moving average at 5.6% year-over-year, which for perspective, is higher than the 1990s, when it was a little above 5%. We were at about 4% in 2018 and 2019, so year-over-year, wage growth is coming down. It was peaking a bit over 6% a few months ago, and there’s no doubt the labor job market has weakened.
The full interview can be found here.