Opinion: A Hesitant Look at an Uncertain 2013

By Bob Costello

Chief Economist

American Trucking Associations

This Opinion piece appears in the Jan. 14 print edition of Transport Topics. Click here to subscribe today.

As we close the book on 2012, I think most economists and trucking executives would agree that while growth is preferable to the alternative, the relatively anemic growth we saw last year is certainly nothing to get excited about.

And, unfortunately, in looking ahead to 2013, I have to say that if you didn’t like how the economy performed in 2012, then you’re not likely to feel good about this year, as it will be the same or worse by most measures.

There are a number of culprits conspiring to keep the brakes on what certainly feels like an economy on the verge of robust growth. Increases in taxes; reductions in spending by businesses, consumers and governments; reduced manufacturing output; and a lack of confidence that lawmakers in Washington can solve the nation’s most pressing issues are all holding the economy back from the growth we are all hoping for.

One economic certainty for 2013 is that your taxes are going up. Despite the 11th- (or 12th- or 13th-) hour deal to avert the “fiscal cliff” that is being hailed as keeping rates lower for the vast majority of taxpayers, most Americans will see their taxes rise as the payroll tax holiday expires. This 2% increase in taxes will be compounded for those with higher incomes, as they will see their normal income tax rates go up.

Higher-income taxpayers also will see further increases in the payroll tax and taxes on investment income in order to finance the reforms of the Affordable Care Act, or Obamacare.

Increases in taxes will reduce the amount of money consumers have to spend, at a time when households already were dialing back their consumption. In 2012, consumer spending on goods rose 4.3%, or about half as much as it rose in 2011. Those tax hikes, coupled with slow growth in employment and wages, will keep a lid on consumer spending this year — I’m expecting only a 2.1% rise in spending on goods.

Consumers aren’t the only ones slowing their spending. Businesses also are dialing back investment. Factory orders already are posting negligible year-over-year growth, foreshadowing more deceleration in manufacturing output. In 2012, factory output rose 4.2% from 2011, and I expect that rate to fall to 2% in 2013. Overall business investment in capital goods should grow at a similarly reduced pace, dropping to 5.1% in 2013 from 9.1% in 2012.

What does all this mean for trucking? Well, it means continued sluggish freight volumes that we saw in late 2012. As most of you felt last year, truck tonnage growth did not keep pace with 2011 because of swelling inventories and, toward the end of the year, the effects of Superstorm Sandy.

That trend should continue with the subdued pace in consumer spending and manufacturing, and while I expect the ATA for-hire truck tonnage index to grow in 2013, that growth probably will be in the range of 2% to 2.5%, weighted toward the end of the year as signs are pointing to improved conditions in 2014.

Despite slower economic and freight growth this year, the industry still has to address two pressing issues: the need for new equipment and the driver shortage.

Right now, the average age of a Class 8 truck is older than it should be — leading to increased maintenance costs. However, new equipment is also expensive because of federal rules on engines. These two factors will continue to keep equipment costs high and could force some fleets out of the industry.

At the same time, the slow growth gives carriers time to address the looming shortage of drivers. Coming off two straight quarters of truckload turnover in excess of 100% on an annualized basis, it is obvious we’re looking at a tight market for drivers. With housing starts the lone bright spot among economic indicators, we could see our industry’s shortage of drivers double from about 25,000 now to nearly 50,000 by the end of 2013 as potential drivers leave the industry for the construction sector.

This possibility seems like a lot of bad news, and truthfully, there’s little to feel truly optimistic about in 2013, but it isn’t as dire as many prognosticators have feared. Right now, I see this economy as one that is poised to grow — and grow rapidly — but that growth will have to wait until 2014 before we really see it on our bottom lines.

This delayed expectation is due in large part to the uncertainty that continued partisan squabbling in Washington is causing. In November, the voters returned President Obama — as well as a Republican House of Representatives and a Democratic Senate — to Washington. Now, these three groups have yet to show they can function efficiently or effectively in managing the nation’s fiscal and economic challenges.

While we did get a “fiscal cliff” solution passed on New Year’s Day, it is only a temporary solution. The deal that passed earlier this month just sets up an equally big fight over mandatory spending cuts and an increase in the nation’s debt ceiling in two months or so.

If Republicans in the House can’t come to some agreement with Democrats in the Senate and the White House over these cuts, along with raising the debt ceiling, there’s a risk that the United States could default on its debt — raising borrowing costs and even plunging the nation back into a recession.

American Trucking Associations, Arlington, Va., is a national trade federation with affiliated associations in every state. ATA owns Transport Topics Publishing Group.