Costello on the economy: "Slowing but growing"
As the second quarter of the year comes to a close and July approaches, the temperatures are rising. However, American Trucking Association’s chief economist doesn’t foresee the economy and trucking industry heating up quite like it did last year.
Bob Costello isn’t ready to say that trucking and freight companies should batten down the hatches for an imminent recession, but he senses something is off.
At the annual conference of American Trucking Association’s National Accounting and Finance Council on June 11, Costello, ATA’s chief economist and senior vice president of international trade policy and cross-border operations, said several factors concern him.
It’s not the numbers that are giving him pause, it’s trucking officials who are too concerned with the possibility of a downturn that they’re afraid to take risks.
“When I come to meetings like this, everyone is like, ‘What is going on? Are we headed for a recession?’” Costello said.
“When people start asking those questions, you know what that tells me? You go back to your businesses, and you are not going to take risks. And when you don’t take risks, that means we are not going to grow at the same pace that we were.”
President Donald Trump’s trade wars are responsible for some uncertainty, and that is one of many unknowns that could hurt the U.S. economy, according to a Transport Topics article.
Economic expansion: slowly but surely?
The U.S. economy has actually been in a state of expansion since late 2009. While the economy has been growing in this expansion for a while, Costello still isn’t ready to call for the possibility of a recession in this year or the next.
“The risks of a mild recession have increased,” Costello said. “It’s not my forecast. All I am saying is, the risks have increased … The theme is slowing but growing.”
Typically, economists define recessions as two consecutive quarters of contraction in the economy. However, Costello’s projections predict quarterly growth in what remains of this year and all of 2020 of about 2% annualized growth, per quarter, according to Transport Topics.
Job growth
Unemployment is the lowest it has been since 1969, Costello said, creating a labor shortage in some areas. “We now have significantly more job openings than we have unemployed people,” he said.
At this late point in the country’s economic expansion, such job growth is reassuring, according to Costello. He added that if the job market cools a bit, it’s not “the end of the world.”
The job market is testing the boundaries of “full employment,” so a slowdown would be understandable, ATA’s economist said.
The high employment rate also leads to increased pay and wages. “People are making more money,” Costello said.
What does this mean for the trucking industry?
These economic concerns pose the most threat to smaller carriers who rely on spot markets, which have experienced a drop in the past few months. This decrease in spot market rates coincides with smaller carriers attempting to attract drivers with increased pay, two factors which Costello said are coming together at a bad time.
“Contract freight is doing better than the spot market,” he said. “The spot market has been hit hard … I think you are going to see more and more fleets going out of business.”
This could result in some fleets seeking bankruptcy protection or just going out of business, according to ATA’s economist.
Costello concluded by reassuring the audience that any recession won’t be as hard-hitting as the Great Recession, which lasted from 2007 to 2009 and also previewed a long, sluggish recovery.
“It should be relatively mild,” he said.