For the commercial truck industry overall right now, "the stage is set for more growth," surmised Stephen Latin-Kasper, director of market data and research at NTEA, pointing to a handful of economic trends as indicators.
He spoke at the recent NTEA Work Truck Show in Indianapolis, delivering something like a view from 1,000 feet, so to speak — think skimming the trees here and there — in the first portion of an economic outlook on the industry. "The things we want to see getting better are pretty much all getting better at the same time," Latin-Kasper said, and here are some more takeaways from his discussion.
1. Growth in the U.S. gross domestic product (GDP) will increase slightly more in 2016 vs. 2015.
According to Latin-Kasper, increases and decreases in commercial truck chassis sales in the United States and Mexico overall tend to track what's going on with the U.S. GDP by a predictable ratio. "When GDP goes up about 1%, work [commercial] truck sales tend to go up about 8%, and it's the opposite on the way down," meaning truck sales dip down about 8% for every 1% U.S. GDP falls.
This year, while commercial truck chassis sales are expected to grow by about 5%, GDP is projected to increase by 2.6% overall, he noted, compared with 2.4% growth last year. But it won't be even growth from quarter to quarter.
"There was a big dip in the first quarter of 2014 for weather-related reasons, and that bounced back up strongly in the second and third quarters," he said. "In 2015 we kind of repeated that pattern: a slow first quarter, good growth in the second and third quarters, not so good in the fourth quarter." This year, he added, "the first quarter is starting out much better than last year."
2. Consumers and government have been paying down debt.
Another significant trend is that consumers as well as local, state and the federal government "have cleaned up" or are reducing a good deal of debt they've been carrying. He pointed to periods of economic recession, noting that the Great Recession chopped down commercial truck chassis sales by some 60% from 2007 to 2009.
"We have not yet completely come back from that — in terms of units, we [the commercial truck industry] have yet to get back to our previous 2006 peak," Latin-Kasper told the audience. "But we now have one of the best income-to-debt ratios that we've seen since the late '80s to early '90s for consumers; same thing applies to businesses. State and local governments are more out of debt, and on a relative basis, the federal government — compared to recent history — is looking pretty good as well.
"So the stage is set for more growth, and there's room for more growth with current capacity," he continued. "We aren't utilizing it to its fullest extent yet, which we know because most of what was in place in 2006 is still in place."
3. Personal consumption and nonresidential equipment spending may be heading northward.
For several reasons, Latin-Kasper said, consumers may be at a point where they're more likely to spend, and there's reason to believe nonresidential equipment expenditures as of the end of 2015 "may have bottomed out and it's now starting to come back."
One driver of those upticks is that personal incomes and wages "are growing on a real basis — that is, inflation-adjusted — for the first time in almost three decades," he explained. Couple that with less debt, Latin-Kasper noted, and it's making for an outlook that boils down to cautious optimism: "Consumer confidence is looking pretty good, though historically it's not great."
4. Continued growth is forecast for commercial truck chassis sales overall.
So what's on the horizon for the commercial truck industry in terms of sales? Latin Kasper said the industry's total sales volume was about $100.2 billion in 2013, and there was around $12 billion in additional sales in 2014 (about $121.9 billion total) and again in 2015 (about $134.0 billion total).
For 2016, the industry should see total sales of approximately $140 billion, he predicted. "We've been seeing growth — not ridiculous rates of growth, but growth," Latin-Kasper said.
5. Expectations are different for commercial box-off chassis, tractors and vans.
Considering total sales of commercial trucks, some 925,000 total units were shipped and sold in 2015, noted Latin-Kasper. That includes about 425,000 Class 2-8 box-off chassis, 225,000 tractors and 275,000 commercial vans.
Sales in that box-off chassis segment and commercial vans are projected to continue to grow this year as well as in 2017 and 2018, he said. However, "tractors are expected to slide this year and probably continue sliding a bit in 2017." Contributing to that negative forecast for tractor sales was "a massive inventory buildup" for that segment through 2014 and 2015, he noted.
6. Lead times for sales may extend somewhat, but inventories are mostly near balanced.
Latin-Kasper also discussed commercial truck inventory levels and shipments as well as what to expect for lead times on sales. "Lead times got pushed out as we moved through 2014. We picked up the pace of shipments towards the end of 2014 and getting into 2015, but expectations fell at that point," he told the audience.
"The response to that was, 'Well, maybe we shouldn't keep shipping as much as we were,' and inventories were drawn down," Latin-Kasper noted, before inventories balanced out somewhat at the end of 2015. Right now it's a similar situation where inventories are drawing down again, "and we're likely to see lead times stretching a bit," Latin-Kasper said.
Though there are some exceptions with particular chassis configurations, Latin-Kasper contended that "generally speaking, things aren't looking that bad in terms of lead times throughout most of the industry."
7. Growth in freight shipments slowed last year but is stabilizing.
To get a good sense of what's going on with Class 8 trucks and trailers, one thing to watch is freight shipments, according to Latin-Kasper. He suggested following the Freight Shipments Index the American Trucking Assns. publishes each month.
"What it's telling us right now is the same thing we're seeing in our own industry and in many other industries: rate of growth kind of tapered off in 2015, but it stabilized — and as I started discussing earlier, the stage is kind of set" for things to pick back up a bit, Latin-Kasper emphasized.