On the final DAT Freight & Analytics iQ show for 2022, Professor Jason Miller discussed the economic outlook for trucking in 2023. Here’s part of the interview with Ken Adamo, Chief of Analytics, and Dean Croke, Principal Market Analyst.
Dean Croke: Jason, what trends are you watching as we head into 2023?
Jason Miller: So the biggest thing I’m looking at right now is what’s happening in the single-family housing space. We just had the November data released today, and it is not encouraging in terms of if anybody was expecting, you know, some type of immediate uptick with mortgage rates coming down a little bit. We have seen single-family housing fully regress to where it was in 2018 and 2019.
Essentially, which, while not that bad on absolute terms post-Great Recession, is still down about 60% from last year, and obviously, that has a major impact on the flatbed side for moving housing products like lumber and shingles. But also, large appliance manufacturers’ production is almost connected one-to-one with warehousing starts, which means less demand for steel and appliances.
And so when you look at the inventory build-up, especially at the wholesale level, it’s all connected to the slowdown in single-family housing.
So my standpoint is that is the single most important sector for us to be looking at closely as we move into next year because if housing stays, you know, depressed from where it was in 2021, that will not bode well for flatbed and will not bode well for driving and carriers with a lot of connection to that sector indirect.
Ken Adamo: What do you think about civic projects tied to the infrastructure bill? Can you potentially offer a bit of a hedge against some of the slowdowns in the single-family housing area?
Jason Miller: It will, but that’s a very different freight mix than building houses. You’re not looking at moving lumber long distances; you’re looking at moving a lot more cement, concrete, rebar, and asphalt, so that will be very good for many of your short-haul carriers. It will not be a one-to-one direct substitute for those firms with single-family housing exposure. It’s an entirely different set of firms being affected. Next year could be a great year for cement manufacturers and concrete manufacturers. That’s a completely different ballgame.
Ken Adamo: When do you think we’ll dig out the freight bottom and inflect upwards from a holistic market perspective? We’ve been sort of calling late Q1 to early Q2.
Jason Miller: That’s where I’m at right now as well. Q1 is obviously the slowest time of the year for freight. We are starting to see some initial positive signs that the inventory glut in the general merchandise sector is getting whittled away, along with holiday sales seeming to be fairly strong. I think more from a global recession standpoint; Europe’s looking fair, more positive than we thought, but still not great. And China obviously is having horrendous COVID outbreaks right now. But I think the wildcard next year is assuming China sticks with more lax COVID policies; they have a horrible two to three months ahead with Omicron.
But what happens on the other side of that, do we see them come out with strong oil demand, and does that then drive up the price for oil because right now that Russian cap is effectively not in place right now in the global oil markets, given where oil prices are at. But oil has a lot of upside risk as we move into the middle of 2023. And so that’s something many carriers need to remember right now.
Dean Croke: One of the topics you talk about a lot with your ton-mile index is the impact of truckload demand from the industrial sector. Can you speak to industrial production numbers?
Jason Miller: Right now, seasonally adjusted, we are trending down a little bit, which is a little concerning because this is the time of year for industrial production anyway. So what that’s telling me is that output is falling slightly more than we would expect with seasonality. The other thing there’s starting to be some serious concern about is that the employment survey has been overestimating employment over the last few months. A lot of that employment data feeds into the industrial production calculations. So we actually may be overstating industrial production even more.
And so, if that’s the case, I’m definitely a little worried. I mean, steel production this year has not been what it was last year. That’s very clear when you look at the big four firms. So I’m definitely a little worried.
Dean Croke: Can you give us your thoughts on truckload capacity?
Jason Miller: The one thing that still surprises me is when you look at the number of business applications using EIN requests to the IRS to start companies and transportation and warehousing, they’re still incredibly elevated from before COVID. And what’s more, they’re actually trending up on a seasonally adjusted basis, which makes absolutely no sense in the current freight market. Because when you look at 2019, those numbers were down substantially from 2018, when we had a down cycle. So it still seems many people want to start trucking companies.
The full interview can be found here.
