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US GDP 2018: On the Transportation Economic Front

August 09, 2018 by TMW Systems

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Newly released figures from the Commerce Department showed the US economy was firing on all cylinders in the second quarter of the year, turning in its strongest performance since 2014.  The gross domestic product, the widest measure of the economy, increased at a 4.1% annual rate in April through June. That’s nearly double the upwardly revised first quarter rate of 2.2% and the third best growth rate since the end of the Great Recession in 2009.


So, What's Behind this Economic Jump?

It was broadly based with a solid increase in key expenditure areas such as consumer spending, one of the biggest drivers of the economy, aided by a healthy labor market, rising disposable income due to tax cuts, improved consumer confidence and the wealth effect of higher home and equity prices, according to Wells Fargo Securities.

Trucking has no doubt reaped the benefits of this increased economic activity. The Cass Freight Index, which measures freight movements in all domestic modes, showed both freight volume and freight rates in June were “extraordinarily strong.”

Also, the American Trucking Associations’ truck tonnage index for the first six months of the year the level increased 7.9% over the first half of 2017 and far outpacing the annual gain of 3.8% for all of last year. The group said it expects the growth in tonnage “to moderate, but remain at very high levels in the months ahead.”


Spot Market, Rising Inflation & Trade Protectionism

On the spot market side, things also looked strong through the first half of the year as rates for spot market transactions matched longer-term contract rates for dry van equipment, while spot refrigerated and flatbed rates exceeded contract rates as a national average. DAT Pricing Analyst Mark Montague said that June capped an unprecedented 15-month run of spot market rate increases, the longest sustained period of pricing power for truckers since deregulation.

Trucking is no doubt seeing its best times since deregulation nearly 40 years ago, but there are some possible headwinds you need to be on the lookout for.

building houseOne, according to Wells Fargo Securities, indicates rising inflation will limit real income gains, and higher interest rates may already be impacting housing markets. Consumer prices are up nearly 3% over the past 12 months as of June, the biggest increase since February 2012. New homes sales in June hit its lowest level since October 2017 while existing homes sales fell for the third straight month in June.

Also, while there was no indication of trade protectionism weighing on US economic activity with exports in the second quarter, there is still concern of the US and China getting into a full-blown trade war, as the Trump administration pursues an aggressive stance against the world’s second largest economy, as well as with its dealings on trade with Canada, Mexico and Europe.

Just as important, says Stifel Chief Economist Lindsey Piegza, there is concern about temporary support to the economy from what she called one-off gains, such as from the effect of tax cuts, coupled with trends of waning momentum…which calls into question the sustainability of above-trend top line growth looking out to the second half of the year.

Lastly, keep an eye on oil prices. As CNBC pointed out in a recent story, the price of crude jumped 20% in the first half of the year. Moody’s Analytics Chief Economist Mark Zandi reminds us that quickly rising oil prices have been a contributing factor to every recession since World War II.

 

Now is the time to re-exam your business operations and drive inefficiencies out. Contact us for more information on TMW’s:

Tags: Transport Economy

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