Everything
Changes
The election of Donald Trump as POTUS brought a pronounced
shift in strategy, tactics and actions regarding the U.S. economy. It’s almost as if President Trump is CEO of
U.S.A. Corp and is managing the entire economy as a business entity. This has never been tried before and
therefore the degree of economic uncertainty has greatly increased.
Current
Situation
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Truck and trailer orders dipped before the
election due to increased uncertainty about the outcome. This is common and the economy usually also
slows down due to the same phenomenon. Smaller fleets and small businesses get
particularly cautious. After the
election fleets started ordering again, in volumes much higher than expected.
Orders usually increase in October and stay elevated until December, as fleets
place their requirements for the coming year. In 2016, orders for trucks and
trailers did not spike until November (a direct result of the election),
however orders have remained strong through March.
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The economic indicators are improving,
including the key, forward-looking ones. It is important to note, so far this
is the result of an economy on a natural upcycle and not the result of
President Trump’s policies, which have not been implemented yet. Therefore, you should ignore the political
rhetoric on this, both positive and negative, for a while). The economy is
forecast to grow at a 2.4% clip for the first-half of the year, with potential
upside based on the status of these positive indicators. Based on the delivery
dates of the orders, trucking fleets are expecting a stronger freight market in
the second half of this year.
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There is renewed economic confidence because,
although the economy slumped some (1.6% GDP) in 2016, it did not go into
recession and looks poised to resume growth. The monthly Class 8 truck build
declined 54% from June 2015 to December 2016. Drops that steep almost always
are connected to recessions, but not this time. Truck build has increased the
last two months, and the jump in orders means the worst is over.
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Consumer and business confidence is soaring.
Consumer confidence is at a 16-year high and small-business optimism at a
13-year high. The Obama administration was viewed largely as pro-regulation and
anti-business by many companies. With a business magnate like Trump in charge,
businesses are expecting positive changes. Consumers are feeling better because
the election is over, the job market is improving, and the economy is doing
better than in 2016.
The
Future Could Be Good
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Some onerous regulations are being eliminated
or delayed. Trucking was a favorite
regulation target of the previous administration. It is expected that most pending,
non-safety related regulations will either be delayed, changed, or eliminated.
In addition, future greenhouse gas standards on trucks and trailers could be
modified. Less regulation could lead to
greater economic growth in the general economy.
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Tax reform could help small businesses,
including many trucking fleets, that believe they are over-taxed. If fleets have more money to invest, this will
help equipment sales and other sectors of the industry.
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Increased infrastructure spending helps
trucking and the economy. The investment in roads and bridges will increase
freight and improve truck traffic flow.
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Trucking is now viewed as a “favored” industry.
It often appeared the previous administration viewed trucks as something that
polluted the air and endangered the highways. On March 23, the president of the
American Trucking Association, ten leading industry executives, and twelve
truck drivers were Trump’s guests at The White House. They discussed issues
affecting trucking. They also brought along a high-tech truck/trailer
combination in which the President was photographed sitting in the driver’s
seat. This would indicate there will be a much friendlier business climate for
the industry.
The
Future Could Be Bad
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NAFTA renegotiations could create
problems. For the most part, NAFTA
logistics has worked well for the benefit of the three countries involved. The
optimal logistics routes and systems have been established and utilized. Some
products cross borders multiple times before sale. Changes to this system, and
unforeseen consequences, could disrupt supply chains and cause major issues and
problems for the transportation industry.
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Trade agreements will be renegotiated with
China and other countries creating the potential for multiple trade conflicts,
and even trade wars, if negotiations turn sour. This would have a deleterious
impact on the economy, exports, and freight.
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Interest rates will probably keep rising. Interest
rates were kept artificially low for many years after the Great Recession. Now
rates are gradually being increased. At some point this will discourage
borrowing and put a crimp in economic growth.
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There is a great deal of uncertainty about the entire
Trump presidency. There are master plans to bring manufacturing jobs back to
America. There is a new strategy to deal with conflicts around the world. There
is a new immigration policy. There is still a looming healthcare crisis to deal
with. Missteps in any one of these areas
could lead to an economic downturn.
What
About the Economy?
-
The economy was improving before Trump took
office, so he is not responsible for what happens in Q1, and he probably won’t
have much impact on Q2. So please ignore the press reports which over-dramatize
this. Likewise, the impact of a “Trump
Bump” on the U.S. Stock Market is also exaggerated. However, there is some
positive impact to increasing consumer and business confidence on an economy
already gaining steam, similar to giving a push to an object already in motion.
-
Most economists don’t expect the economy to
grow more than 2.5% in 2017. There is some upside potential if the confidence
numbers turn into actual dollars spent. Most of Trump’s plans for job growth
and reforms will take time to implement, meaning the impact would be in 2018 or
later.
Other
Industries Beyond Trucking
The transportation industry is not unique
and is tied to almost all sectors of the economy is some way, so I would
conclude that many factors impacting trucking and impacting other industries as
well. The expectation of less
regulations, lower taxes and a better business environment is boosting business
confidence. However, this confidence is
in future conditions, therefore the orders and investments placed today will
need to yield rewards at some point.
Freight
Forecast
FTR is forecasting Class 8 truck freight
to grow by 2.9% in 2017. This is a healthy increase over the 1.3% growth rate
for 2016. The freight forecast is consistent with the economic outlook above
assuming the manufacturing sector continues to strengthen.
Equipment
Forecast
A moderately growing economy, generating
modest freight growth, will support a basic replacement demand of trucks. Class
8 truck builds are forecast to increase 1.6% in 2017. Dry Van trailers had a
robust year in 2016, as fleets are still replacing old trailers whose trade
cycles were extended due to limited use during the Great Recession. Trailers
production is expected to decrease around 7% in 2017, but still be historically
strong. The mandate to use Electronic Logging Devices (ELD) which automatically
record driver hours, is expected to decrease truck productivity and increase
demand for new trucks (and some trailers) at the end of 2017 and into 2018. If
this impact kicks in earlier than expected, 2017 demand will be higher.
Too
Many Wild Cards
The biggest impact of the Trump presidency
right now is a pronounced increase in uncertainty. It’s like playing a whole
new card game for the first time and being dealt five wildcards. There are so
many new factors in play which could have a significant impact (either way) on
the economy and freight
