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The US and its ‘Goldilocks’ economy: Not too hot, not too cold


ORLANDO, Fla. — The US remains mired in a “Goldilocks economy” – not too hot and not too cold, but disappointing on the whole.

That was how Kenny Vieth, president and senior analyst with ACT Research, characterized the US economy when speaking at today’s Fall meeting of the Technology & Maintenance Council. He said it has been growing at a pace of 2-2.5% and will likely continue to do so next year.

Canada’s largest trading partner faces headwinds such as the strength of its dollar, which makes US-made goods less attractive in places such as Canada and Mexico. The US economy remains stronger than most others, however.

“The US right now is the best house in a bad neighbourhood,” Vieth said. “Two per cent growth is good stuff in today’s world.”
Vieth said the US isn’t at risk of going into recession, citing the wide yield curve spread. Low oil prices have been detrimental to oilpatch exploration, but a benefit to the trucking industry, which is paying about US$1.50 per gallon less for fuel than it did a year ago.

The trucking industry, said Vieth, is enjoying record profitability, which has translated into strong truck and trailer demand.

“It’s not the freight that drives (equipment) demand,” he said. “It’s trucker productivity that drives demand. If truckers are making money, truckers are buying trucks.”

He said publicly traded truckload carriers have seen profits surge 50% over the past couple years and they’re taking advantage of increased cash flow to fund the purchase of new trucks and trailers.

While the American Trucking Associations’ for-hire truck tonnage index is often cited as a barometer of economic health, Vieth said ACT Research prefers to look at loads, irrespective of weight, which accounts for the trend towards denser freight. While tonnage is up, loads have been flat this year, he said, and the addition of new trucks means capacity is coming online more quickly than demand.

Vieth said in a 2% GDP environment, about 13,000 trucks would have to be added each month to keep pace with demand. However, June’s orders totaled 20,000 units and in August there were 18,000 trucks ordered.

“There’s a lot of capacity coming online in the last half of 2015, well above the rate of economically derived activity,” Vieth said.

The trucking industry also saw capacity increased by about 2% when provisions of the 2013 hours-of-service rules requiring two overnight periods of rest within a reset period were suspended. This addition of capacity in the form of new trucks and the better utilization of existing trucks could explain why spot market rates have entered negative territory in recent months, compared to last year, Vieth said. Carrier surveys also suggest capacity is rising faster than freight availability.

Impending new regulations, however, could tighten capacity once again. Vieth said when an electronic logging device mandate comes to fruition, it could wipe out about 2-5% of today’s capacity, since there are still carriers operating today that are only viable because they cheat on hours-of-service.

Fleets struggling to get the freight delivered under an ever-increasing regulatory burden create an opportunity for service providers and shops, Vieth said.

“Is your shop availing itself of the opportunities that exist to provide service to your customers proactively in order to help them maximize their revenue opportunities?” he asked. He said deploying mobile service trucks, offering on-site technicians and providing 24-hour service are among the ways service providers can differentiate themselves.

“The pressure on truckers to perform in an ever-tightening regulatory environment represents a great opportunity for those tasked with keeping vehicles in ready condition,” he said.

 


James Menzies

James Menzies

James Menzies is editor of Truck News magazine. He has been covering the Canadian trucking industry for more than 15 years and holds a CDL. Reach him at james@newcom.ca or follow him on Twitter at @JamesMenzies.
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