Economic Outlook Bright for Holidays
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Goods are pouring into ports, being delivered by trucks to warehouses and e-commerce locations, and retailers are restocking their shelves as the holiday shopping season gets into full swing. It’s also a major reason why trucking continues to outperform the overall U.S. economy.
That’s the assessment of three leading economists: American Trucking Associations Chief Economist Bob Costello, ACT Research President Kenny Vieth and Wells Fargo Senior Economist Mark Vitner. They made their remarks as part of a virtual panel discussion on the state of the economy held by ATA’s National Accounting & Finance Council on Nov. 19.
“Freight is pretty good. The spot market is killing it. Contract freight is OK,” Costello said. “There’s a lot of weird seasonality. Not all freight is strong. The retail side is very strong. E-commerce is killing it. You have good freight going to grocery stores, the cold and frozen side, but restaurants are down.”
The three said another strong market is home construction, meaning a significant uptick for flatbed companies, especially those that transport lumber and other raw materials. Also, carriers that make furniture deliveries see a spike in business as people furnish new homes or renovate and add items for existing offices.
“I do expect it to be a good peak season, and I think the restocking effort will go into 2021,” Costello said. “But I do expect freight to level off, and, ironically, when that will probably happen is when we get a health solution, vaccines or therapeutics.”
Contract freight makes up 80% of the freight that is transported in the U.S., and the spot market handles the rest. Early in the pandemic, with demand tightening, spot rates surged by 80% to 90% year-over-year, but that dropped in October to a 40% increase.
Costello said that according to the U.S. Labor Department, trucking has added 66,000 jobs in its latest monthly report. Still, the industry is beset by a driver shortage that worsens as the labor situation becomes more constricted.
Since January, trucking also has lost more than 34,000 drivers in the new Drug and Alcohol Clearinghouse, and 26,500 have not begun the process to return to duty. The driver shortage also is being impacted by the slow return to normal at state department of motor vehicle offices, which were shut down or operated for six months or more at reduced levels because of the pandemic. That has affected the ability of new entrants to the industry because they cannot get commercial driver license testing.
“The pipeline of new drivers coming into the industry is significantly less,” Costello said. “When I talk to truck driver training schools, they are down 20% to 50% in terms of the number of drivers trained this year compared to last year. That’s a hole that’s going to take a long time to dig out from.”
ACT’s Vieth said that because of the pandemic, there has been a fundamental shift in economic activity from services to goods, pointing out a 14% increase in durable goods spending in September and a 7% decline on spending on services. Durable goods include appliances, home and office furnishings, lawn and garden equipment, and consumer electronics that typically last three years or longer.
The increase in spending on durable goods is good news for trucking, at least in the short term.
“After we see a vaccine, we are going to see a shift away from consumer spending and back toward services,” Vieth said. “We see a very nice runway if we get the vaccine and everything else.
“But there are many known unknowns. What will be the size of the stimulus going to be for the left-behind economic sectors? Trucking is doing great, but there are a lot of people in the country who are hurting. The challenges of COVID are not behind us.”
Wells Fargo’s Vitner said he’s optimistic that by mid-2021 the country will begin to put the COVID-19 pandemic behind as the vaccine is distributed. By summer, he said, half to two-thirds of the country could receive a vaccine, and the economy should begin to stabilize.
“By the middle of the year, we should reach herd immunity where two-thirds of the population have had the disease or have been vaccinated,” Vitner said. “There are some challenges ahead, especially for mall-based retailers. There’s been such a big shift to online shopping. The discount stores, Target, Walmart, they’ve been blowing it out, and the home improvement chains have been doing incredibly well, because people are spending more time at home.”
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