At a time when many economic indicators are truly all over the place—including employment, retail sales, manufacturing and industrial production, and many others—it can be very difficult, in these times to assess, or gauge, the true state of how the economy is really doing.
In more “normal” times, GDP has long been considered the standard bearer of how things are going in the economy, but that does not appear to be the case as much anymore, given the myriad mixed signals and indicators that are out there. And, of course, not to be overlooked, there has been a lot of talk about whether or not the economy is, in fact, in a recession. The case was made for that on the heels of the United States Gross Domestic Product (GDP) reading, for the second quarter, at -0.9, following the first quarter’s -1.6 reading. The reason for that is that many economists maintain that two consecutive months of GDP contraction means a recession is underway. But, to be, sure, there are differing opinions when it comes to that.
On a webcast hosted by the Transportation Intermediaries Association (TIA) this week, Jonathan Starks, Chief Intelligence Officer for freight transportation consultancy FTR, and Avery Vise, FTR Vice president of Trucking, addressed the current state of the economy with a freight-based focus, to help put things into perspective.
“There is clearly slowing in the U.S. economy,” said Starks. “We have two quarters of negative GDP creating quite a bit of a stir in trying to call a potential recession because of that. But as of right now, FTR does not see us in a recession.”
That sentiment was driven by a few different factors cited by Starks, including:
- really solid consistent payroll job growth over the first half of 2022, which is likely easing over the back half of the year, with strong job growth largely intact; and
- strong overall industrial activity, with only one month of decline over the last six months through July, which he said does not indicate a negative economic environment, with manufacturing only seeing two months of declines, with each coming in the second quarter
“This is not a market that indicates the industrial market is significantly impacted,” observed Starks. “It is impacted in one way…with supply chain impacts affecting both manufacturing and retail, as we were working through the second half of 2021. The retail side seems to be getting its act in order and starting to get some excess inventory. Now it is manufacturing’s turn to see if it can get the supply chain output it needs to help support demand for production over the balance of this year and into the first part of 2023.”
Starks also touched upon the goods transport sector. And he observed that while looking at GDP is useful, there are what he called significant downsides.
One is that the U.S. economy is dominated by services, with the caveat that services don’t really drive demand for transportation. And he added that there is a quirk in the calculation of GDP, in which imports count as a negative, which is the opposite of what it is for transportation, because both the importing and exporting of goods both drive volumes.
From a trucking perspective, FTR’s Vise noted that within goods transport there is a lot of activity that falls outside of for-hire and also what he called the typical transportation arena.
“When we talk about a negative goods transport environment, that does not necessarily mean that we are looking at negative numbers throughout transportation,” he said. “In effect, some of the goods transport is more forward-looking anyway.”
Looking at certain segments, he noted dry van showed some growth in the second quarter, although it was a little more tapered than it was coming out of contraction. And he added that when adjusting for inflation, retail sales have been quite stable.
On the refrigerated side, he said there are not many dramatic increases or decreases, as it is tied to food consumption, which he said is a fairly typical trendline, adding that it saw strong growth through 2021 and it is continuing to see growth, at a time when growth is leveling off in most segments.
For flatbed, Vise said it is an interesting story, in that there is stronger and more consistent growth from the middle of 2021 through the beginning of 2022, with things having leveled out on a year-to-date basis.
“A lot of that probably has to do with residential construction, which had some very strong growth in 2021 and has since been relatively weak,” he said. We need to keep that in perspective, though, even while there has been three months of declines, things are still running above where they were in 2019 by about 12%. And industrial activity is also a big driver here.”
FTR’s Starks and Vise presented a thorough analysis of where things stand in looking at various components tied to the intersection of key economic indicators and freight and the supply chain. The last 30 or so months have shown us things we never thought we would see economically, many of them at the same time, to be sure. What happens next is uncertain but analysis like this helps to get a good handle on a big picture outlook.