Are We In A Truck Recession?
By Noël Perry, TIA Chief Economist
It’s a matter of fact and a matter of perspective: Let’s deal with the facts first. Economists loosely define a recession as two consecutive quarters of GDP growth less than zero. For the six quarters beginning in 2008: We had five when GDP shrunk. That’s a recession! This year the first quarter grew at 3.2% and the latest guess about the second quarter is 1.7%. That latter number is a disappointment for sure, but it is not a negative. No economic recession here.
But what about freight? That’s a good question. Sometimes freight goes negative even when GDP is positive. In 2001 there was no ‘official’ recession, but freight shrunk each quarter. Is that happening now? Here are the quarterly numbers from the last two years. All positives. Although – the last two quarters are well down. I said above that recession can be a matter perspective. If one is used for freight growth of two or three percent, two quarters of growth less than two percent may feel like recession.
Does this mean that capacity utilization is getting soft? We are fortunate to have very up to date information on the spot market, itself a significant space. It also has value as a leading indicator for the whole truckload market. In the next chart, you can see the data from the Truckstop.com MDI measurement (loads posted/trucks posted). This historical data shows us that a bad recession, like 2008-2009 produces numbers below 10, while a soft spot like we had in 2015-2016 produces numbers are 10. Currently, we are above 30. That is certainly weaker than the peak of a year ago, but it is decidedly not recessionary.
The contract price data tells us the same thing: We measure rates compared to their long term trend to understand the dynamics of any individual year. (Rates have risen a little each year since 2003, so one has to factor that trend out before you can understand the short term dynamic. Although the current value is down two percentage points in the last two quarters, it is still a robust 5% above trend. In previous recessions, it fell to five or ten percent below trend. While shippers are pleased that the peak is past, they are definitely not enjoying recessionary contract rates. While we expect contract rates to steadily move back towards trend, they do not indicate recession.
The story with spot rates is more nuanced: With spot rates, it is as if the facts were a matter of perspective. We have again, the excellent data from Truckstop.com to thank for the facts. They appear again as deviations from the underlying trend. 0 on the graph is ‘normal’. You can easily see the peak of the recent capacity spike at 20% above trend. Ominously the latest data is 10% below trend – and, this is the important finding: it is in the same rough range as during the 2009 recession and the weak spot in 2016. We know from the fact above that neither this event nor the 2015-16 event qualified as a recession by other perspectives. Still, this data suggests that spot prices are at or nearing recessional levels. We thus have factual evidence full of contradictions that beg for insight. I suggest three: First, this may simply be a temporary reaction to the shock of falling so quickly from the high place of a year ago. The latest data show rising spot prices; maybe we are on a rebound towards normal. Second, and ominously, this data may be the canary in the coal mine that indicates a real economic or freight recession to follow. That did not happen with spot prices before 2008, quite the reverse. However, this one bears watching.
Maybe it’s just shy pricing: Finally, this data provides evidence of what I have long called ‘shy’ trucking pricing. Despite the extraordinary value provided by American truckers and the growing difficulty of acquiring sufficient capacity, truckers are dangerously dependent on emotion with their pricing. When events, as in ’04, ’14, and ’18 provide emotional cover, prices move up rapidly. But with the first signs of trouble, truckers usually give back much of their gains. So, rather than a gradual, well-managed return to normal from the 2018 peak, enough people have panicked at the softening market conditions to drive pricing to ‘recessionary’ levels, despite the absence of recessionary conditions.
Horray for big data! It’s important to note that, in the 2004-2008 cycle, when we now know the same things happen as with today, we had great difficulty figuring out what was going on until six to nine months after the events occurred. In 2019, thanks to Truckstop.com we have weekly updates on a variety of market conditions down to the specific lane detail. This should enable a variety of industry participants to follow development closely and to respond more quickly and more effectively to the volatile events of our markets. We urge you to invest more time in such analysis, recognizing that it is not some abstract evidence of far off events, but rather tangible evidence of what is happening in YOUR markets.