The possibility of the economy entering a recession at this point appears to be not a question of whether it will occur, but when it will. This was a key topic in a session this week at the 2023 SMC3 JumpStart conference held in Atlanta.
Brent Hutto, chief relationship officer for New Plymouth, ID-based Truckstop, explained that there is likely to be some sort of recessionary activity in the economy, most likely because it is probably needed. And he said one of the main drivers is related to the Federal Reserve’s monetary policy actions to stave off inflation, which, while still at high levels, is starting to ease, with inflation hitting small businesses alike. carriers, major carriers and consumers.
“For me, it’s more of a corrective action than anything else, because things have gone so high during the pandemic for so long,” she said.
As for the timing of a 2023 recession, Hutto said he thinks it is likely to occur in the second quarter or early second half of the year.
Bob Costello, chief economist and senior vice president of international trade policy and cross-border operations at the Washington-based American Trucking Associations (ATA), said the most likely scenario, in relation to a recession, is that it will be mild and rather short, with the caveat that the timing could be somewhat complicated, adding that December inflation and retail sales data could point to a Q1 occurrence.
“Housing is already in a recession and manufacturing [output] and retail sales are down,” he said. where the freight economics is worse is because if you go back to the pandemic, we were stuck at home, not going to movies or sporting events or traveling and we started buying stuff, and all the carriers started hauling that stuff and delivering it. Now we’re on the other side with people going back to vacationing and dining out among other service-related businesses and that’s making a dent in spending on goods But now in addition there’s a recession in real estate and manufacturing, which has been growing in recent years, is starting to contract.If you add all of that up, then you have a freight recession, and that’s essentially what’s happening.
Addressing the current state of inventory levels, Costello said it’s somewhat nuanced, as looking at the US Census Bureau’s inventory-to-sales ratio data, it doesn’t appear inventories are “too bloated,” with levels of inventory that are falling back to pre-pandemic levels.
“If you remove that from the retail side, it’s really that big box retailers are the ones with too much inventory, and that’s a cycle that’s also a headwind for freight,” he said. “It’s improving, but it’s still ahead of where we were, but it’s moving in the right direction.”
Jason Bergman, chief commercial officer of Overland Park, Kan.-based LTL carrier Yellow Transportation, labeled the current state of the market as “extraordinary,” with some parts of the economy doing better than others, or a K-shaped
For general merchandise retailers, he noted that no matter where their inventory levels are, they will need to be replenished, being a question of how much.
And he addressed other key metrics that have the potential to account for a potential recession, including recent falling manufacturing data, which he says could leave producers much more cautious about building inventories in the spring.
“It goes back to the whiplash effect, with too much or too little stock, and [shippers] I need to understand what that mix is,” he said. “There are other factors as well, like single-family housing is down, while non-residential construction is doing very well.”
About the author
Jeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine where he is involved in all aspects of the supply chain, logistics, freight transportation and materials handling on a daily basis. Contact Jeff Bermann