ACT Research Economist Says Yellow Lights Flashing as 2020 Draws Near

Date: April 30, 2019
Source: TruckingInfo.com

The trailer industry has enjoyed a “fantastic 10 years." However, numerous economic indicators are showing that both the trucking industry, and the U.S. economy as a whole, may have “reached the top of the rollercoaster,” with a downturn likely next year.

That’s the on-a-napkin economic take of Jim Meil, economist with ACT Research, as he recounted both broad economic indicators as well as trend lines specific to the trucking industry, especially trailers. Speaking to attendees at the Truck Trailer Manufacturer’s Association’s 77th Annual Meeting in Bonita Springs, Florida, on April 25, Meil started off by noting that while economic conditions in the U.S. are still positive, the economy is not as strong as it was this time a year ago, with warning signs that a slowdown is on the horizon coming in from indicators across the board.

Moreover, Meil said, while he doesn’t think a full-blown economic recession is likely next year, he cautioned that he cannot rule one out completely. Recently, he said, signs that a recession may be lurking just beyond the horizon have increased. Currently he says there is a one in three chance one will occur in 2020.

In terms of Main Street America and small business owners, Meil said that economic confidence levels are still strong, although he said a large contributor to that outlook is the largely conservative political outlook of small business owners and their general happiness at seeing a Republican in the White House and a Republican-controlled Congress (until last year’s mid-term elections). However, he said, even this broadly optimistic group have shown signs of lessening economic confidence as we move further into 2019.

Positive economic indicators currently include a strong job market and Wall Street, with high corporate profits and good loan availability. “Most of the economic worries we’re seeing today come from political activity in Washington,” he added, “as well as developments overseas.”

Those worries are mainly focused on risky trade negotiations, the Federal Reserve raising interest rates, a slowdown in manufacturing, and decreased home building activity. Additionally, he said that a weaker global economy, unrest overseas and the 2020 presidential election are already putting drags on the U.S. economy.

“The Federal Reserve is raising rates, and that is a reliable sign a recession could be on the horizon,” Meil cautioned, adding that of the five classic trigger points identified by as economists for a recession, two have already occurred. “So recession is not a given. But there are ‘yellow light’ signals that the economy may slow down. We’re walking on thinner ice, economically speaking, today.”

Turning specifically to trucking and trailer markets, Meil said that 2018 was “hellaciously” good for transportation and trucking. The combination of too much freight and too little capacity turned both 2017 and 2018 into great years for asset-rich carriers.

But, Meil cautions, slowing freight is now degrading fleets’ pricing power in the marketplace. Taken as whole, Meil said, “These indicators mean we’ve probably reached the top of the roller coaster and probably in for tougher times as we work our way through 2020.”

A further drag on production and sales will come from California when new regulations from the California Air Resource Board specifically targeting heavy-duty truck trailers come into effect. Manufacturers should be preparing now for new certification filing and warranty reporting standards that will have to be met to sell trailers in California beginning next year.

Trailer orders peaked in December of last year, Meil noted. However, the backlog in the industry is still so large that it has cushioned the softer market for new trailers that has emerged since the end of last year.

“Trailer production is at near-record levels right now,” he said. “But beware a still-powerful 2020 will probably be a step down from where we are right now.”

The truck trailer industry enjoyed a “remarkable run” over the past 10 years, Meil added. This year he believes the industry will build 331,000 units, with next year’s production numbers dropping to a still-respectable 275,000 units. Click here for the original article in Heavy Duty Trucking Magazine.

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