FTR Associates' latest truck market forecast registers yet another downward revision to the near-term freight and truck production forecast. Its four full quarters of Gross Domestic Product shrinkage brand this downturn as a full-blown recession, highlighted by a 4% (annualized) fall in GDP during the current quarter. The economy has not seen a negative 4% quarter in 26 years.
The freight market is forecast to fall for seven consecutive quarters, bottoming out in the third quarter of 2009 at more than nine percent below the year-end 2007 level. Moreover, the most recent economic data reports indicate that the U. S. GDP annualized change for the fourth quarter might be as much as a 6% drop. It is early evidence that the 1982-like recession that FTR has been warning its clients about could be underway. The 1982 event included -6.2% and -4.9% quarters.
Here is what a 1982-like recession would mean to the truck market:
Tonnage would fall by 10% YOY.
Such a fall in freight would reduce the required stock of trucks by 270,000 units. Since the industry can only reduce capacity at a much slower rate, FTR estimates that a surplus of 200,000 units would result, divided between the used-truck market, trucks retained by fleets but parked, and trucks underutilized.
This surplus would drive capacity utilization below 80%, a level not breached in at least a decade.
It follows that trucking margins will decline, as well as equipment purchases, with U.S. retail sales perhaps falling below the 75,000 level for 2009.
An in-depth analysis of the possible economic scenarios and their resulting effect on new equipment demand for 2009-2010 will be presented the January 2009 report.