Despite some signs that the economy may be approaching bottom and indications of a slightly more optimistic attitude in the trucking market, there is no clear sailing yet. Those were the conclusions of the Commercial Vehicle Truck and Trailer Outlook and Update webinar hosted by FTR Associates Thursday, May 7.
On the positive side, sales in the housing market have stabilized, consumer sentiment has improved, and the stock market – while still well below previous levels – has risen and is roughly flat for the year, said Bill Witte, with the Center for Econometric Model Research, the primary engine FTR uses to drive its forecasts. Other positives include a financial market that’s no longer completely frozen and the fact that initial claims for unemployment seem to have peaked about a month ago. “In the past, this has been a consistent indicator of a recession trough,” he said.
Historically, unemployment claims peak four to five weeks before the end of a recession. That means that when economists look back on this period, they might point to the end of this month or next as the actual end of the recession, although Witte conceded that this “may be optimistic.” April employment declined by 580,000, “but that’s about 100,000 better than previous months. We think we’ll start to see some job growth early in 2010.” He expects unemployment, which is at 8.9 percent for April, will peak at about 10 percent by the end of this year.
Still troubling is continued weakening in the international sector, which will “negatively affect exports for the next year or so,” Witte said. At the same time, our financial system remains far from healthy, the federal government is under pressure to “unwind their liquidity creation” or risk inflation, and the federal debt is reaching levels Witte calls “unsustainable.” Despite such negatives, he sees the economy beginning to recover over the next year and a half.
Turning to the trucking market, Eric Starks, FTR president, said freight demand – which has seen a 12 percent decline year over year – is slightly below levels that indicate a severe recession. Saying that fleets “don’t buy equipment unless there’s freight to haul,” Starks predicted more short-term pain regarding equipment demand.
Making matters worse, many carriers are upside down on their equipment, Starks said. “They can’t get rid of it in the secondary market, so they are sitting on it.” And with so much idled equipment, “why would banks lend money even if they had it?” Carriers also are extending their replacement cycles because they are driving fewer miles, so equipment lasts longer.
Nevertheless, the attitudes in the trucking market are “slightly more optimistic,” Starks said. “The heavy bleeding has stopped, and by the second half of next year, we should start to see some positive demand.” FTR predicts about 106,000 Class 8 factory shipments to the North American market in 2009, rising to 151,000 in 2010 and 196,000 in 2011. These projections show “modest growth compared to what we’d like to see,” he said.
The federal stimulus package might help the trucking market, but not in the near term, Starks said. Carriers “won’t begin to feel it until the fourth quarter of 2009,” which means it will be the first half of 2010 before it will impact equipment buying, he said. “There’s a lag between when freight hits the market and when that eventually drives demand for equipment.”
