“I ENCOURAGE YOU TO, AS YOU’RE LOOKING AT THE FEAR IN THE NEWSPAPER AND IN THE MEDIA,
FILTER IT. SAY, IS THIS THE CONSUMER ECONOMY? IS THIS THE INDUSTRIAL
ECONOMY? BECAUSE YOU’RE GOING TO GET MIXED SIGNALS ON AN ONGOING BASIS FOR THE NEXT SEVERAL MONTHS.”
KNOWING THE DIFFERENCE The transition from an industrial-
led recovery to a consumer-led recov- ery has led Broughton to change the investment advice he gives his clients. In 2012, he was advising them not to invest in trucking because margins were falling. At the beginning of 2014, trucking went from a “sell” to an “out- perform.” For motor carriers, pricing power is higher than cost inflation, so margins will continue to improve. Unlike previously in the recovery, truckloads will grow faster than ton- nage. Tonnage also will grow, but on the strength of the consumer economy, not the industrial one. Broughton explained the rail sec-
tor’s many issues. Weekly carloads for 2015 are well below 2014 levels. The sector has less to haul as manufactur- ing slows, and the railcar backlog is at a record high. Also, the drop in crude prices is creating a drop in drilling activity, reducing rail hauls of sand, pipe and concrete, while cheap natural gas is driving down rail coal volumes. Even train speeds have fallen. “So they’re moving less, they’re getting paid less, and they’re doing a worse job of moving it,” he said. Because he believes diesel prices
will fall, Broughton sees less demand for intermodal transport. For certain hauls – including those between 550 and 650 miles, it will be cheaper to travel by truck than it is to combine truck and rail. But not all the news was good
ARKANSAS TRUCKING REPORT | Issue 3 2015
for traditional trucking. Especially worrisome are rising inventories, par- ticularly in manufacturing but also at the wholesale and even retail levels. Rising inventories are bad because it means fewer trucks will be needed to haul fewer goods. But they were more disturbing in the first quarter, when inventories added .7 percent to a gross domestic product that grew only .2 percent. In other words, remove the increasing inventories, and the econ- omy actually shrunk during the first quarter because of the slowing indus- trial economy. Why has it taken this long for
the consumer economy to accelerate? Broughton blamed a number of factors, starting with the media, which he said bombards Americans with fear-based messages. A fearful populace is less likely to take the risks that are neces- sary for building wealth. He challenged conference participants not to buy into that fear. “I encourage you to, as you’re look-
ing at the fear in the newspaper and in the media, filter it,” he said. “Say, is this the consumer economy? Is this the industrial economy? Because you’re going to get mixed signals on an ongo- ing basis for the next several months.” Another headwind facing the con-
sumer economy has been the demo- graphic changes occurring as baby boomers retire from the workforce, removing more institutional knowledge from the economy than the next gen- eration is yet ready to offer. Another
headwind is accelerating “disintermedi- ation” – the replacement of the middle man by technology, he said. During a question-and-answer ses-
sion, Broughton said the government is financing its $18 trillion debt poorly by doing it on a short-term rather than long-term basis. With rates this low, it ought to be locking itself in for decades. He said borrowing money at a fixed rate of 2.7 or 3 percent is not a problem if that money can be invested to produce a higher return. However, he said that it’s difficult to talk about the debt when he doesn’t know what the U.S. government’s assets are. Among his other predictions for
2015-16, Broughton said that consoli- dation in transportation is poised to dramatically increase, and that elec- tronic on-board recorders will have a big impact on the nation’s fleet capac- ity. The driver market will remain chal- lenging, which he said is a good thing because it indicates that the economy is prospering and people have job opportunities from which to choose. And predicting farther into the
future? That’s hard to do, Broughton said in an interview. “You can predict the economy over
the next two, three, four quarters with some level of reliability, and then the predictability starts to drop off,” he said. “And so I’m really fond of say- ing, if you want to know what’s going to happen in two years, ask me in 12 months.” ATR
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