Using the trucking industry as a barometer, Don Ake, vice president of commercial vehicles for FTR, says a “mild” economic fallout by year’s end is highly likely.
“Our industry is a leading indicator for the economy,” he says.
In data he posted Tuesday, Ake looked at North American Class 8 truck demand for the past two upcycles (October 1999 and October 2006), then measured how long it took after that peak for the general economy to enter recession (March 2001 and December 2007).
“Truck demand is very cyclical, and the economy is also,” he says. “Therefore, if truck demand is a leading indicator, it should always hit a peak before the general economy. It also makes sense that trucks haul goods and, if you need fewer trucks now, then you are hauling fewer goods in the future and economic growth should slow.”
With a gap of 17 months and 14 months, respectively, between the previous two peaks and the economic recessions that followed, Ake says he expects the next one to arrive between August and November of this year.
“Because the current truck demand cycle is very similar to 1999 to 2000 – so far – let’s say the model is predicting a recession beginning in Q4 this year,” he adds.
Ake says overall economic data for the five months trailing truck production peaks in 1999 and 2015 are similar, but weakness in 2016 is more severe.
“We’re falling faster than we did in ’99,” he adds. “I guess that’s an argument for something happening before November.”
While the data indicates economic weakness is likely in the coming months, Ake says a bounce back in manufacturing could fend off a recession.
“The manufacturing index has been below 50, which is the growth rate, for five straight months,” he says. “We’ve basically had no growth for six months. If that number gets above 50 and keeps growing, it’s going to be difficult for the economy to go into recession this year. If that number goes below 50, then there’s a problem. It’s signaling manufacturing is not recovering and then you have to say its only a matter of months before you could see a recession.”
Sixty percent confident that the prediction of a recession by year’s end will come to fruition, Ake says he reserved 40 percent optimism over the absence of a negative gross domestic product (GDP), and the hopes for manufacturing growth and steady consumers spending.
“There are some indications that things are going to get better,” he says, “but I would be surprised if you didn’t get some downward pressure in the fourth quarter.”
“If we make it through the fourth quarter without a recession, then then one of two things would be true,” he adds. “One, maybe we’ve made it through the danger zone, period … and might be safe for a while.”
The other, he says, is that some historically standard indicators used to forecast economic conditions need to be reevaluated.
“Economists are famous for saying, ‘things are different this time,'” Ake says. “Things have been different for six years.”
Any recession, Ake says, isn’t likely to be serve, mirroring the economic environment of 2001.
“There’s no indication that things should fall apart,” he says. “Because economy isn’t growing, any recession should be mild. The economy isn’t crashing, it’s just different.”