from Zero Hedge
The US trucking industry had a blockbuster year in 2018, as high demand for freight allowed transportation companies to expand fleets. But since freight demand was artificial, sparked by importers pulling forward to get ahead of tariffs, the good times were destined to end and end rather sharply.
According to new data from the Bureau of Labor Statistics (BLS), the boom in trucking jobs could be over. More than 4,500 truckers lost their jobs in July and August as the freight industry continued trending lower.
This was the first time the BLS slashed trucking jobs since March when about 1,200 were laid off. The latest cut was the biggest since April 2018, when about 5,500 truckers lost their jobs.
Donald Broughton, principal and managing partner of research firm Broughton Capital, told FOX Business that in 1H19 nearly 640 trucking firms failed. That equates to 20,000 trucks have been pulled off the road.
In 2018, only 310 trucking companies failed, which points to an accelerating trend that could transform into a major bust cycle for the industry in 2020.
“This has to do with the spot market,” American Trucking Associations chief economist Bob Costello told FOX Business. “Those fleets that are primarily in the spot market are facing volumes that are down nearly 50% and rates that are down nearly 20%.”
As previously reported, we’ve detailed how a freight recession continues to gain momentum through the end of summer, likely to continue through fall into 1H20.
And we’ve routinely pointed out that freight is a leading indicator of where the economy could be headed. At least 70% of domestic goods are moved on heavy-duty trucks, so when freight companies are cutting their workforce – it’s typically the onset of an economic downturn.
As far as a downturn, the Institute for Supply Management’s purchasing managers index plunged to 49.1 in August, the first time a contraction has been seen since 2016. The index printed below 50 suggests a manufacturing recession is developing. Data also showed new orders dropped to a seven-year low, while the production index hit 2015 lows. So it makes sense why trucking jobs are being slashed, it’s because of manufacturing output is slowing, which requires fewer trucks to haul goods.
And to make matters worse, ACT Research warned that last year’s surge in trucking demand has led to overcapacity for the industry, could depress freight rates for the next several years. About 6% more capacity was brought online last year, or about 90,000 heavy-duty trucks. Production of heavy-duty trucks could reach 350,000 vehicles this year, the second-highest level since 2006.
What’s new in this report is that trucking layoffs are increasing – and it’s the overall growth rate cycle downturn in employment that could start weighing on consumer sentiment and ultimately shift the economy into a full-blown recession sometime next year or the year after.