What’s in Print

Tank fleets should benefit from slow, but steady growth in the US economy

TANK truck fleets outperformed much of the rest of the trucking industry over the past year. With a majority of tank freight under contract, tank fleets are achieving solid revenue gains, according to Bob Costello, chief economist and senior vice-president of international trade policy & cross-border operations for the American Trucking Associations.

Costello also reviewed the outlook for trucking overall and the US economy in general during his annual economic update delivered at the National Tank Truck Carriers 71st Annual Conference in Las Vegas, Nevada.

He noted that truck fleets will only average about 1.5% growth in loads this year compared with 3.5% growth in 2018, but it’s important to keep in mind that this growth is coming while the US economic expansion continues at a historically high level.

“People keep asking me if a recession is coming,” Costello said. “It’s not. Last year we had an economy that grew well above trend. We are moving back to trend. The US economy is slowing, but growing. That means a recession can be pushed off even further.

“Economic expansions don’t die of old age, they usually die of something else—a bubble or the Fed doesn’t realize the economy is slowing and they keep pushing on the brakes until it’s too late to avoid a recession. Federal Reserve Board has said they have no plans to increase interest rates this year. I believe the next threat of a recession won’t be until 2021 or later.”

Costello said he believes the biggest threat to the US economy revolves around international trade. “There are a lot of things going on,” he said. “The USMCA (US Mexico Canada Agreement) has about a 50-50 chance of being ratified by the Senate. President Trump has threatened withdrawal from NAFTA if USMCA isn’t passed.

“We’ve been telling legislators that we in trucking have a good blue-collar story to tell regarding the benefits of the trade agreement. We have close to 50,000 full-time truck drivers that are just hauling NAFTA freight.

“The China situation also is very worrisome. President Trump has said he would increase tariffs on many Chinese goods anywhere from 10% to 25%. US companies increased many Chinese imports at the end of last year to avoid the threat of higher tariffs.”

Despite the looming threat of trade wars, the US economy grew by almost 3% in 2018. Should grow by 2.4% this year and 2.2% in 2020.

Consumer fundamentals remain good, including a solid job market. The unemployment rate for 2018 fell to 3.9% (and it dropped to 3.7% for two months during the year). It is forecast to reach 3.6% this year.

“We are near or at full employment right now,” Costello said. “We have more job openings in this economy than we have unemployed people.

“It’s incredible that we are still hitting 210,000 new jobs every month when we are at full employment. Don’t be surprised if the new jobs number comes down a bit. Wage growth climbed to 3% last year. I think it will be slightly less this year, but up again next year.”

Housing construction is the weakest of the economic sectors that drive truck freight. Housing starts are projected to be relatively flat this year.

“Last year saw the highest level of housing starts since 2011, but the overall numbers were continually disappointing,” Costello said. “There were a number of reasons for that. Interest rates went up. There isn’t as much open land around cities now. Developers often have to tear down an existing home to build a new one. Millennials are not buying the sort of homes people thought they would.”

Factory output grew by about 2.7% in 2018, but slower growth is expected for the next two years. Costello suggested that growth in manufacturing activity will be around 1.5% in 2019 and 1.4% in 2020.

Plastics production has seen a nice little rise. US plastics output grew by 1.1% in 2018, and should grow by 1.4% in 2019.

US chemical production has risen steadily since 2017. Last year, chemical production grew by 4.0% and should increase by another 2.0% in 2019. Upwards of 2.8% growth has been projected for 2020.

US paint production has slowed but is still at relatively high levels. Paint production grew by 5.2% in 2018, but growth is projected at 2.2% this year.

Cement production is falling this year due to relative flatness in the construction sector. US cement production grew by just 0.1% in 2018, and production is forecast to decline by 5.2% this year and 0.2% in 2020.

US production of industrial minerals, including clay, lime, and gypsum will be flatter. Costello predicted a 0.3% drop in production in 2019, followed by a modest rebound of 0.2% in 2020.

US food production grew by 2.8% in 2018 and should grow by another 1.5% in 2018 and 1.7% in 2020.

US oil production has benefitted from higher prices. US production is still at record highs, with 20% of crude oil now being exported.

TAGS: Trends
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