ºÚÁϳԹÏÍø

Click here to write a Letter to the Editor.

By Bob Costello

I>Chief Economist and Vice President

merican Trucking Associations

The question I probably get asked the most, at least of late, is where is the economic recovery for the trucking industry. After all, the nation’s gross domestic product grew at a 5.8% annual rate in the first quarter of this year, the highest rate since the fourth quarter of 1999. Yet truck tonnage grew by only a scant 0.3% during the same quarter compared to a year earlier.

You need to peel back only one layer of the GDP data to see why trucking was not invited to the economic party. First, total consumer spending, which has been a driver of economic growth for some time, added more than 2.5 percentage points to the overall 5.8% increase. However, much of consumer spending was on services, which does little if anything for truck freight volumes in the short term. Personal expenditures on services alone added 1.6 percentage points to total GDP during the quarter. The growth in services over the last couple of years is a major reason why overall economic growth did not suffer a significant dip during the past recession while truck freight did.

Second, personal spending on durable goods, which are products expected to last at least three years, contracted at an 8% annual rate in the first quarter. This followed a surge of nearly 40% in the fourth quarter. Much of the growth during the last quarter of 2001 was due to sales of new cars, which slowed during the first quarter of this year. Really, the only positive news for trucking on the personal consumption side during the quarter was that non-durable goods increased 8.4%.

Third, the war on terrorism also made a significant contribution to the first quarter GDP reading. State and local spending increased at a 5.6% clip, while federal purchases, most of them on military and security spending, increased at a 12% rate. While some trucks certainly carry a large amount of government freight, this spending did not broadly impact the industry during the one-quarter period.

Fourth, exports of goods fell at a 1.2% rate in the quarter, also putting a damper on truck freight. Although total exports did increase 6.8%, it was due to a 27% increase in services.

Fifth, the lack of business investment continues to put a lid on any expansion for the trucking industry. Private nonresidential investment (i.e., business investment) dropped at a 5.7% annual clip during the first quarter. This was the fifth consecutive quarterly drop in this category.

Until businesses start to reinvest, trucking is not going to see significantly better freight volumes. Unfortunately there really is no reason for businesses to invest right now, until they know the economic recovery is on solid ground. Furthermore, with manufacturing capacity utilization quite low (it is currently running around 74%, well below the average of 81% from 1967-2001), much of the industrial sector can increase production without investing in new equipment or plants, which will also keep a lid on business investment and thus truck freight in the near term.

All of the aforementioned factors are why truck freight volumes increased only marginally, although overall economic growth was robust. However, there was good news for trucking last quarter. The change in private inventories added 3.1 percentage points to the first quarter reading. Most businesses have changed gears from liquidating inventories to rebuilding them. That should add to the second quarter GDP figure as well, and to trucking volumes. However, this will not be a long-term trend unless sales increase from business investment and consumer spending above and beyond their current rates.

Looking to the future, while there are certainly going to be more bumps in the road, it appears that trucking can expect freight volumes, in general, to pick up. It looks as though the worst is behind us. But let me caution that it also doesn’t look like robust growth, like the industry witnessed in the late 1990s, will return either. Mild recessions usually precede mild recoveries.

As the employment situation improves later in the year, consumers should increase spending levels. Let’s hope it is on consumer durables and non-durables, in addition to services. And as more evidence of an economic recovery surfaces, businesses should start investing again, which will be an excellent development for the trucking industry.

American Trucking Associations is a national trade association of the trucking industry, with headquarters in Alexandria, Va., and affiliated associations in every state. ATA owns the company that publishes Transport Topics.