At the Retail Industry Leaders Association (RILA) LINK 2019 retail supply chain conference, American Trucking Associations (ATA) Chief Economist Bob Costello delivered a compelling presentation offering valuable insights into the future of freight economy for supply chain, logistics, and transportation stakeholders.
Costello's presentation, titled "Dangerous Curves Ahead: Domestic Transportation Outlook," provided a detailed analysis of emerging trends in freight economy and trucking industry, painting a nuanced picture of the sector's future trajectory.
The Inevitability of Economic Recession
Costello stated unequivocally that an economic recession was not a matter of "if" but "when." He posed a critical question to retailers, carriers, and third-party logistics providers in attendance: "Are we heading toward recession, or simply slowing down to return to normal?"
"We're returning to normal, not entering recession," Costello answered. "But we will eventually face recession—that's nearly certain. However, in my view, the probability remains low before late 2020, with 2021 being more likely."
This prediction was based on comprehensive analysis of current economic indicators including consumer spending, employment, housing markets, and manufacturing output. Costello emphasized that while 2019 might see slower growth, fundamental economic strengths would continue to support expansion.
2019 Economic Growth Projections
Despite forecasting eventual recession, Costello stressed that 2019's economic performance shouldn't be compared directly to 2018's exceptional results. He projected continued growth at moderated rates, with quarterly GDP estimates of 2.4% (Q1), 1.6% (Q2), 2.5% (Q3), and 2.1% (Q4).
"While these figures appear less impressive than 2018's performance, underlying fundamentals remain strong—particularly in consumer activity and labor markets," Costello explained.
Strong Consumer Activity and Healthy Labor Markets
Costello highlighted an unusual economic phenomenon: current U.S. job openings now exceed the number of unemployed workers. This situation naturally raises a crucial question about wage growth during full employment periods.
"Last year marked our economic cycle's peak with 3% wage growth sustaining consumer purchasing. While growth rates may moderate, the fundamentals remain sound," he noted, emphasizing these factors' continued support for freight activity.
Stalled Housing Starts Raise Concerns
Among concerning indicators, Costello identified housing starts—which despite achieving post-2007 highs in 2018, recently showed stagnation. December 2018 recorded the lowest new housing starts since September 2016, attributed to supply constraints and rising mortgage rates.
This stagnation could negatively impact economic growth and potentially reduce freight demand in construction-related transportation sectors.
Manufacturing Strength Offsets Housing Concerns
Counterbalancing housing market challenges, Costello reported robust 2% manufacturing output growth in 2018 with optimistic future projections. "These factors suggest continued economic expansion and corresponding trucking industry growth, though likely at slower rates than 2018," he explained.
U.S.-China Trade Tensions
Regarding potential trade war impacts, Costello acknowledged policy risks while noting recent positive developments—particularly delayed tariff implementations. He suggested that slower, more sustainable GDP growth might prove beneficial long-term.
Driver Retention Challenges and Compensation Lag
Costello addressed persistent industry challenges surrounding driver turnover, directly linking the issue to long-term compensation stagnation. "Comparing 1980s driver pay against today's real dollar value shows higher historical earnings...we have significant ground to regain," he stated.
Improved compensation at large carriers reduced turnover rates by 20% during 2018's second half. However, Costello warned that even moderate recession could force many carriers out of business if unable to sustain current pay levels.
Potential Recession Impacts
The presentation emphasized trucking industry vulnerabilities during economic downturns, including reduced freight demand, carrier failures, and driver unemployment. However, Costello highlighted the sector's historical resilience and adaptability during previous recessions.
Proactive measures could help mitigate negative effects and position the industry for post-recession recovery, he suggested.
Conclusion
Despite existing challenges, Costello's analysis identified multiple encouraging factors for continued economic and freight growth. With strong fundamentals and demonstrated adaptability, the trucking industry appears well-positioned to navigate coming economic shifts.
His presentation provided valuable "road condition reporting" for supply chain professionals preparing for future freight economy developments.
About American Trucking Associations (ATA)
As the largest national trade association for the trucking industry, ATA represents trucking companies of all sizes through advocacy, resources, and member services.
About Retail Industry Leaders Association (RILA)
RILA serves as the premier trade association for leading retailers, manufacturers, and service providers, offering advocacy and business resources to members.