ON THE HORIZON Growth in Economy’s Future,


Eventually ATA economist expects 2013 to be OK, 2014-15 to be better


BY STEVE BRAWNER ContributingWriter


Economic uncertainty and slowing factory


orders will lead to slower growth this year, but pent-up demand should result in a more prosperous 2014 and 2015, according to Bob Costello, chief economist for theAmerican TruckingAssociations (ATA). Costello said businesses and consumers


remain wary even though theGreat Recession has ended. They’re uncertain about the country’s economic future and don’t know what Congress will do next. Europe remains shaky. Meanwhile,Hurricane Sandy hit the nation’s eastern seaboard at the same time the fiscal cliff battle hitWashington. “That uncertainty just holds back


businesses,”Costello said. “You don’t want to take any risks. You don’t want to go out there on a limb, hire more people and invest in more capital until there is less uncertainty.” Costello said the economy would have


been expected to “grow gangbusters” after the Great Recession ended.Unfortunately, growth has been sluggish. “There have been a lot of headwinds that have prevented the economy from reaching its potential,” he said. “We’ve been growing far below its potential.” However, pent-up demand hasn’t gone


away,Costello said. For example, consumers need to replace aging vehicles, and indeed they are doing so, as light vehicle sales have risen from a low of about 10 million units in 2009 to 14.4 million in 2012 and an expected 15.1 million in 2013. Among the most important economic


indicators is the housing market, which began heading south after reaching 2.3 million starts in 2006, bottomed out in 2009 and hasn’t improved much since.However, residential construction finally started to show some life in 2012 with a 25 percent increase to 767,000 units and an expected 28 percent increase units this year. Aside from autos and housing, however,


ROADWISE | —BOB COSTELLO, CHIEF ECONOMIST, AMERICAN TRUCKING ASSOCIATIONS


the economy is slowing.Consumer spending on goods increased by 4.4 percent in 2012 but is expected to increase only 2.6 percent in 2013. Factory orders are expected to slow significantly in 2013.Related indicators such as manufacturing output also are showing slower growth.After increasing by 8.9 percent in 2012, business investment is expected to increase 5.1 percent in 2013. “Most economic indicators are decelerating,


not accelerating,” he said. “The only ones that are accelerating are housing and autos. Everything else is slowing down.” For the trucking industry, 2013 should be


a year of slower growth before things really improve in 2014 and 2015. Inventories related to sales are rising, which means fewer goods will need to be shipped this year. For-hire truck tonnage, after rising 2.7 percent in 2012, is expected to cool to 2 percent growth in 2013, with loads increasing by only .7 percent. LTL tonnage is expected to increase 2.3 percent after increasing 5 percent in 2012. Freight volumes in 2013 should be lower


than in 2012. But again, as long as there is no recession,Costello expects that to be temporary before things pick up in 2014. From fall 2011 to fall 2012, LTL volumes dropped .8 percent while large company truckload volumes fell 2.3 percent. Truckload volumes for small companies, defined as those with less than $30 million in annual revenues, fell 13.4 percent. Flatbed, tank, temperature-controlled and dry van loads all have been on the decline. Long- haul drives of 1,000 miles or more were down 15.4 percent from one fall to another. Carriers are on the right side of the supply and demand equation, however, which should


ISSUE 1, 2013 | www.mttrucking.org


help pricing. The nation’s fleet capacity is still below 2007 levels.While demand and truck supply have been roughly tracking each other since there was an oversupply in 2009, the nation’s fleet cannot handle two consecutive quarters of three percent gross domestic product growth at current levels. That’s partly because the fleet is aging –


from an average age of 5.8 years in 2006 to 6.8 years in 2011 – and carriers are reluctant to buy new equipment because of purchasing and maintenance costs.New tractors now cost $125,000 compared to $95,000 in 2006. Moreover, because their assets have aged, carriers have less trade-in value and must finance more of their purchases. For example, a seven-year-old tractor might trade for $20,000, meaning a company would have to finance $105,000 – more than the entire cost of a tractor in 2006. Indeed, according toCostello, equipment


has replaced diesel fuel as carriers’ most worrisome expense.After dropping to $2.99 a gallon in 2010, diesel fuel hit nearly $4 in 2012, but is expected to drop to $3.83 in 2013. Fortunately, rising fuel prices don’t result in nearly the number of trucking failures as in the past because fuel surcharges have become accepted in the marketplace. In other economic news, unemployment


is slowly dropping from 8.1 percent in 2012 to 7.7 percent in 2013.However, those numbers are deceiving because the unemployment rate only tracks people who are actually looking for a job. The important figure is job creation. That number has been stuck at 150,000 jobs per month and should remain at that pace the rest of this year. In a good economy, it reaches 350,000.


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“THAT UNCERTAINTY JUST HOLDS BACK BUSINESSES. YOU DON’T WANT TO TAKE ANY RISKS. YOU DON’T WANT TO GO OUT THERE ON A LIMB, HIRE MORE PEOPLE AND INVEST IN MORE CAPITAL UNTIL THERE IS LESS UNCERTAINTY.”


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