While we were very happy to be able to rejoin our industry counterparts in Grapevine, Texas, for this year’s Heavy Duty Aftermarket Dialogue (HDAD) session this past January, it quickly became apparent that many of the faces we had hoped to see would not be in attendance. So, for those who were not able to make it, here are some of the highlights of the presentation we made about current and prospective conditions in the trucking economy.
After bringing everyone up to date on the MacKay and Co. January 2021 forecast of Truckable Economic Activity (TEA), our proprietary measure of the trucking economy, which foreshadowed the progress made by the industry in getting back on its feet following the pandemic, we turned our attention to the four factors we think will play dominant roles in how conditions develop over the rest of 2022 and into 2023.
The first, which we call “Shots,” centers around the pandemic. Last year, as the vaccination process was beginning, we thought the pace at which we were able to get control of the public health threat would dominate how quickly both the trucking economy and the overall economy would get back on their feet. While the threat has taken a different form this year, the risks to public health still pose the greatest obstacle to sustained economic growth.
The second factor, which we call “Schools,” focuses on how the interruption of normal education activities have created multiple effects on economic and social activity. Until the schools are fully functional, the ability of people to work as well as the ability of our children to learn will continue to be impaired.
The third factor, which we call “Saloons,” is shorthand for the entire leisure and hospitality sector of the economy. Prior to the pandemic, this sector was the largest component of nonfarm payroll employment. Every community has bars, restaurants, entertainment venues, and hotels. And the structural changes that have come to those industries because of the pandemic have had multiplier effects through the rest of the economy.
The latest employment figures for January 2022 showed that total payroll employment was still 2,875,000 below the level of February 2020, which was the onset of the pandemic. Of that 2,875,000, 1,750,000 jobs were in leisure and hospitality. This broke down to 984,700 in restaurants and 472,900 in hotels. All of this suggests that regaining the pre-pandemic level of employment is largely going to depend on how the structural change wrought by the public health emergency on this sector is resolved.
The final factor is “Supply" and that refers to the supply chain issues that have become the second hallmark of this episode. We have been stressing this element of the outlook since March 2020, when we made our first attempt to forecast what would happen after the pandemic shutdowns were imposed.
Our forecast then included a period we called “you can’t sell what you don’t have,” wherein the supply chain problems caused by the physical interruption in the movement of goods would cause shortages leading to lost sales. So, we were neither surprised nor indisposed when those effects began to be felt.
One of the principal effects of the supply chain problem has been a spike in several measures of inflation, most prominently the Consumer Price Index. As part of our presentation, we reviewed several of the major causes of inflation over the past year and suggested the ways in which those factors would continue to act as irritants.
The other element we mentioned was the expected change in the course of monetary policy by the Federal Reserve. In addition to the threat to economic stability the acceleration in inflation poses, the Federal Reserve also has to take account the level of interest rates and their role in the demand for, and uses of, credit. Our expectation, like that of most observers, is that starting in March there will be several increases to the Federal Funds rate.
The title of our presentation was “This Ain’t No Party, This Ain’t No Disco Part III.” And the reason for that was this was the third consecutive year in which our remarks included both elements of optimism and elements of risk.
There have been fundamental changes to how we shop for groceries. Home delivery is here to stay. There also has been a fundamental and lasting change in how and where we work. This is affecting occupancy rates in commercial buildings, the level of traffic on the highways, and the way people are paid. Both of these events are cause for optimism and concern, depending on which side of the situation you are on.
Our advice is to be alert for opportunities to grow your business, but also to be wary of the several threats that could compromise that growth. See you at HDAD in Grapevine next January!
