Postcard #2 from the American Trucking Association’s National Accounting and Finance Council’s Annual Conference – Economic Address by the ATA’s Chief Economist, Bob Costello

“Slowing, but Growing” was the message from Bob Costello, the ATA’s chief economist, when he addressed the National Accounting and Finance Council’s Annual Conference in Indianapolis, Indiana on June 11, 2019. Coming off of 2018, a great year for the trucking industry, this should not be surprising news, as that level of growth would be hard to maintain. He mentioned that although the risk of a mild recession in the next year is low, if all proposed tariffs go into effect, it would raise the possibility of a recession significantly.

Mr. Costello also mentioned that inventory has increased in the first quarter of 2019. He attributed this to two factors: the first was related to manufacturers and retailers stocking up on inventory due to fear of Chinese tariffs , and the second concerned the continued growth of online shopping. Many retailers now guarantee package delivery in 2 days or less, making it necessary for these items to already be in a nearby warehouse and not in a large distribution center that requires at least five days of shipping to reach its destination. He did not see the increase in inventory levels as a major area of concern.

One troubling sign that Mr. Costello sees in the future is the pressure on profits related to increases in driver pay and lower spot market rates, especially for smaller carriers. This convergence could cause these smaller carriers to be forced into severe financial hardship at the next downturn of economic activity.

Mr. Costello mentioned that consumer fundamentals are good and the job market is strong. However, retail sales growth has slowed this year and housing starts continue to disappoint. Inflation is in check for now, and the Federal Reserve has paused any upward rate adjustments at this time. Finally, Mr. Costello believes that the new United States-Mexico-Canada Trade Agreement will be ratified by all three countries.

Bob Costello has been the ATA’s Chief Economist for over 20 years. His presentation at the NAFC Conference was one of the highlights of the three-day event and was very enlightening.