A trucking industry economist provided a glass-half-full view in his overview of the U.S. economy and the freight market that’s expected to improve in the second half of the year after a recession.
In a Transport Topics webinar Tuesday (Jan. 31), Bob Costello, chief economist for trade group American Trucking Associations, said he expects the economy to go into a mild recession in the first half of the year. Still, he expects GDP growth of 0.5% for 2023.
He also noted the possibility of “a soft landing” in the economy and that some economists have projected a recession in the second half of the year. Costello’s projections for GDP in the first half of this year align with what they were in the same period in 2022 but with a weaker job market. He added that the strong labor market kept the United States out of a recession when GDP numbers declined for two consecutive quarters in the first half of 2022.
For 2023, Costello expects soft freight demand in the first half of the year before it stops declining and possibly rises in the second half of 2023. He said capacity is not as imbalanced as it is historically after periods of strong freight demand. Typically, in periods of strength, carriers buy many trucks, but they have not been able to recently.
“I don’t think supply got completely out of whack from where demand is, and that’s going to pay dividends,” Costello said.
In the second half of 2022, the freight market moderated and remains softer than it was at this time last year as people shifted spending to services from goods, the housing market weakened and factory output declined. He said the driver shortage will dip this year to about 65,000 to 70,000, from 78,000 in 2022. It fell from 81,000 in 2021.
Amid a 3.5% U.S. unemployment rate, Costello cited other sectors that are facing a labor shortage like the trucking industry has faced for a long time. He said the driver shortage is not unique to the United States. Canada, Europe and Mexico also are experiencing driver shortages. He noted that Romania and Germany are facing large shortages. Also, a large portion of drivers in Europe are Ukrainians who have returned home to fight in the war after Russia invaded Ukraine last year.
He discussed the Drive Safe Act that allows 18- to 20-year-old drivers to complete an apprenticeship program for interstate driving in the United States. He added that Romania, with 71,000 unfilled driver positions, recently started to allow 18-year-old drivers to take roles equivalent to interstate driving.
He compared the United States to Germany in labor force participation. He said both countries have similar rates of labor force participation. Still, it’s fallen by about 10 percentage points in the United States while rising by the same amount in Germany over the past decade. He questioned the negative thoughts regarding blue-collar jobs in the United States, which are highly regarded in Europe.
“We need to get to that because those are really good jobs,” he said. “Any of you that have hired plumbers and electricians lately, you know they’re doing all right… Blue-collar workers’ pay has been increasing at a faster clip than white-collar jobs… One of the things we need to do is say, ‘Hey, it’s OK not to go to college, and it’s OK to become a truck driver, an electrician or plumber because those jobs are in high, high demand.’ I think that would help increase the labor force participation rate, but it’s going to be much more than that. It’s a lot of moving parts.”
Costello also explained the importance of the Bipartisan Infrastructure Law and how it differs from the COVID-related stimulus money. He said the last round of the stimulus money contributed to inflation, but the infrastructure law will provide long-term economic benefits and increase freight productivity. He noted that the infrastructure investments will lead to rising labor demand that could pressure trucking jobs.
He said driver pay is one of the few occupations that’s kept pace with rising inflation. The pay has risen at least 8% annually; however, he explained that higher wages aren’t the only thing drivers want. He said many drivers choose to drive less while making the same amount of money.
Across the broader economy, the low unemployment rate has put upward pressure on wage growth. He said the Fed prefers an unemployment rate of about 5% to mitigate that pressure and would help with inflation. He said about 1.7 to 1.8 jobs are available per unemployed person. However, a skills gap or geography might prevent some people from attaining a job.
He said the technology industry is laying off workers. Still, amid a housing sector downtown, the construction industry is retaining its workers because of the challenges to hire them again if the industry begins to improve.
Regarding supply chain challenges, Costello said they’ve improved from this time last year. Port bottlenecks along the West Coast have loosened as ocean freight was redirected to Gulf and East Coast ports, and retailers aren’t importing as much. Import volumes at many large East Coast ports remain at above 2019 levels, he said.