ATA economy panel gives mixed outlook

Bob Costello

The chief economist for the American Trucking Associations on Tuesday, Oct. 9, told fleet executives that freight volumes continue to be varied depending on the sector and that trucking’s outlook will be cloudy in the months ahead.

“As far as freight volumes, the trucking economy is pretty mixed right now,” said Bob Costello during the “All Eyes on the Economy” panel during the annual Management Conference & Exhibition in Las Vegas, Nev.

The panel, moderated by Stuart Varney, anchor of Fox News’ Varney and Friends, agreed that the economy could immediately dip into recession if the “fiscal cliff” is not resolved or at least postponed in January, 2013. The fiscal cliff is a combination of automatic cuts to discretionary spending and expiration of Bush-era tax cuts.

Most likely, following the presidential election, Congress will raise the debt ceiling for six months and “kick the can” down the road when it reconvenes in January to buy time to create a new plan. “That doesn’t take out the uncertainty,” said panelist Gregory Daco, senior economist at IHS Global Insight. Even if the fiscal cliff is averted, Daco predicted GDP growth next year will be slightly less than two percent. “Uncertainty will hamper growth.” 

A weakening global economy, particularly in the Euro zone, is decreasing U.S. exports. Daco said he expects to see Greece exit the Euro late next year. On the domestic front, freight volumes are down from one year ago and will be flat for the next few months. Growth is still robust in certain sectors, however.

“Tank truck (6.6 percent) and flatbed (5.5 percent) are doing very well, while conversely you have other areas like dry van (-2.5 percent) that are underperforming,” Costello said. 

Assuming modest GDP growth, capacity will remain relatively in balance to demand because of a driver shortage and high replacement costs for new equipment. If the overall economy were to surprise us and hit 3 percent GDP growth for several straight quarters, “we would not have enough trucks to handle the corresponding increase in freight,” he said. “This speaks to the continued threat of our current quantitative driver shortage of 20,000 to 30,000 drivers potentially getting worse in the future.”

Costello said that while better-than-expected growth would be a surprise, generally the risk of recession or slower growth was more likely.

Another area of concern was the “sharp deceleration in manufacturing orders, which will limit manufacturing output and thus put a damper on truck volumes in the coming months,” he said.

Freight volumes in the trucking industry are largely tied to home sales and new construction. Panelist Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors, said that home values should increase by 10 percent next year after seeing a 10 percent increase in 2011. Rising home values will lead to new home sales as owners have more liquidity to purchase new homes. Housing starts are up by 25 percent this year but are still low by historical standards, he said. 

Varney, speaking to please the crowd, predicted that Mitt Romney would win the election by 5 percent and that Republicans will gain seats in the Senate. The result of the election will be tax reforms in early 2013 and long-term entitlement reform, he said. Together, these steps would create extra money in the economy and lead to 3 to 4 percent growth for the next two years.