Things are slowing down in the economy, FTR’s forecasting for 2023 shows.
That includes inflation, which Avery Vise, FTR vice president for trucking, says seems to be cooling. However, the Federal Reserve will continue to react to higher-than-normal inflation with interest rate hikes to slow down the economy.
Other indicators are expected to hold flat at best, including consumer spending. One rate that fell off a cliff: personal savings, which hit an abysmal 2.4% in November. That indicates a more negative environment, Vise said in a Thursday webinar.
“Personal savings is a red flag for consumption and the overall economy,” Vise says. But wealth remains in the consumer sector, with stimulus-fueled cash still showing up in the market as late as the second quarter of 2022. Third quarter numbers, when available, are expected to be down sharply, Vise says.
Payroll and retail inventories are also flattening out from the volatility during the COVID years, and FTR expects that to continue, which is a positive sign that the economy won’t need a harsher correction as spending hits the brakes.
“We’ve had to build a lot of inventory to support the level of consumption,” Vise says. “This raises some concerns because we expect consumption to fall off over the next few quarters. If these levels were to stay where they are, we would expect to see a correction. Retailers has allowed that ratio to get pretty much out of hand throughout the first half of 2022. This trend is reassuring.”
FTR isn’t going so far as to forecast a negative gross domestic product — yet.
“Certainly, our forecasts have continued to get weaker, so it would not be surprising if, within a month or two, we show some negative quarters,” Vise says.
Weak imports are forecast for the rest of this year, fueling a weaker freight environment and a dropoff in the numbers of active carriers in the market. Something similar happened in spring 2022, Vise says, and then other carriers were able to absorb the affected drivers.
He doesn’t expect that to happen this time.
“What is likely to happen is that we’re going to have some capacity loss,” Vise says. “As we lose drivers from these carriers that are failing, that is likely to be a driver population that we will lose.”
Truck utilization rates will fall off as does the economy, Vise says. The 10-year average for truck use is around 91%. The market is below that now, FTR says, and it’s expected to keep falling to around 86%.
“It looks to ease continually for the next several months, looking to bottom out in the late third quarter of this year,” Vise says.
When looking at spot rates, Vise says, the data would seem to show that carriers are raking in the cash. Total truckload rates have fallen, but it is still similar to a previous peak in 2018. He cautions these numbers don’t tell the whole story. Costs are much higher than they were in 2019.
“This is not a measurement of margin,” Vise says. “It’s a measurement of top line. I’d be hard-pressed to argue that carriers are doing so much better than they were.”