Slowdown in consumer spending, shipment volumes could impact truck utilization rates
Although traffic is expected to expand at a relatively strong rate through the first half of the year (4-5%), the number of commercial vehicles -- which are the primary mover of goods -- is not expected to expand as quickly. As a result, we can expect utilization of the truck fleet to increase.Strong consumer and business spending during the second half of 1997 mea nt that the U.S. economy had a lot of momentum entering '98. Since inventories throughout the production and distribution pipeline remain lean, demand will stimulate output and pull commodities through. This, in turn, is likely to increase demand for local, regional, and linehaul transportation services.
The economy's growth rate is expected to gradually decelerate during the year, causing fleets to dampen investment in truck capacity during the second half of the year. Strong consumer and business spending during the first half of '98 will mask slowing export growth related to Asia's currency crisis.
This slowdown will have a more noticeable impact on shipment activity during the second half of the year, as consumer spending gradually decelerates to a more moderate 3-3.5% pace.
Consequently, fleets would be wise to lower their investment in truck capacity during the second half of '98. If they don't, truck capacity utilization could decline, resulting in lower rates.
A good deal of shipment growth can be attributed to gains in employment during the second half of '97, leading to growth in income and household spending. Real wage increases have also contributed to income growth. Hourly wages increased by 3.8% last year, while prices increased by only 2.3%. And during the fourth quarter alone, hourly wages increased by 4.9%, while prices increased by only 2.1%. Growth in household wealth related to higher asset values, such as stocks and housing, continues to support higher consumer spending through the first half of '98.
We are approaching full employment, however, which means gains in this area can't sustain the first-quarter growth rate. Growth in disposable income will slow in response to moderating employment gains. And since household debt is already high, people won't be able to increase their use of debt to offset slowing income growth and maintain spending levels.
The need to replenish inventories, which will slow consumption, means that the demand for linehaul services will remain strong as demand for local and regional distribution services softens. During the second half of the year, demand for linehaul services will gradually decelerate as inventories expand to normal levels.
A slowdown in the growth of disposable income is likely to have a much bigger impact on consumption of durable goods than nondurable goods because durable-goods purchases tend to be financed, and household debt is already high. In addition, strong sales of new homes over the past several years have satisfied pent-up demand, leading to a slow decline in demand in '98. This, in turn, will slow consumption of household goods and building materials.
As households shift some income from durable to nondurable goods consumption, moderate growth in the latter will be maintained.
In response to the Asian economic crisis mentioned above, exports are projected to increase by 6.8% this year, down from 12.3% in '97. However, economic growth in Canada and Mexico is accelerating, thus stimulating demand for U.S. products. Since trucks are responsible for the lion's share of the movement of goods between these countries and the U.S., exports to Canada and Mexico have a larger impact on truck traffic than exports to other regions of the world.
Decreased exports to Asia will be more than offset by strong export growth to Canada and Mexico, and moderate growth to Europe and South America. In fact, shipments related to exports are expected to increase at a faster rate than overall shipment volumes.