DALLAS, Texas -- If the years 1985 to 2000 were the “Golden Age” for trucking and 2000-2010 was the “Turbulent Decade,” then consider the current era the “Decade of High Costs.”
That was how Jim Meil, vice-president and chief economist with Eaton Corp. characterized the current operating environment for trucking companies, during a presentation at the Commercial Vehicle Outlook in Dallas Aug. 23.
While trying to provide an economic forecast that fleet executives could buy into, Meil cautioned there’s “some real fuzz and opaqueness out there.”
On the global stage, Meil surmised Europe is in the second half of a double-dip recession and China, Brazil and India are “turning in disappointing report cards.” China’s woes are even greater than they are admitting to, Meil said, noting independent data suggests its manufacturing sector growth has actually slowed to 3.5-4%, and not the 9% the country is reporting.
“One lesson we take away is China’s manufacturing growth numbers may be overstated,” Meil said.
In the US, slow growth seems to be in the cards. Meil pointed out 2012 marks the third straight year in which economic indicators started off strongly and then trailed off. There are, however, bright spots in the US economic picture, he added.
Housing starts are up modestly, from recession lows of 550,000-600,000 units to about 700,000. Meil said incremental gains of 100,000 units or so can be expected, but it could be 10-15 years before this segment returns to the boom years of 2004-2005. Non-residential construction - both retail and industrial - is also “clearly on the mend,” Meil noted.
And the automotive market is also recovering, up from a low of nine million light-duty automobiles during the recession to about 14 million today, still well off the yearly average of 17 million vehicles in the industry’s heydays.
Consumer confidence in the US remains depressed and small businesses are taking a “glass half empty” view of the economy, Meil pointed out. This will likely remain the case until after the presidential election. “There’s a lot of uncertainty out there,” Meil said. “Uncertainty breeds inaction and uncertainty breeds inertia. There are a lot of decision-makers standing on the sidelines until they get more clarity after the election.”
Meil characterized the US economy as “the fastest Clydesdale in the horse race” when compared to other economies around the world (he made no mention of Canada’s).
As far as trucking is concerned, indicators such as the Cass Freight Index and the American Trucking Associations’ For-Hire Truck Tonnage Index show a continued recovery in freight volumes. Truckload pricing is firm, and capacity is still tight, Meil noted. He said the Class 8 truck fleet contracted by about 19% through the recession. At the worst of the recession, Meil said there were about 175,000 too many Class 8 trucks for the available freight. Now, he says the industry’s capacity is about 65,000 short of what can be supported.
“That’s good news as far as keeping capacity utilization rates and pricing relatively high,” Meil said.
Meil said the US manufacturing sector is growing and so is truck freight, at a rate of about 3% per year.
“The real takeaway here is that this is a slow-growing economy,” Meil concluded, anticipating GDP growth of about 2% in 2012 and 2013. “This will really be the fourth year of lackluster growth after the worst post-war recession. Normally after a recession, you have an economy that shows a lot more strength.”