the student loan problem. The bottom line is millennials have less to
spend on everything than their parents did, and that has a negative
impact on the growth rate of consumer expenditures.
Another problem in the construction sector is the uncertainty
Congress creates for state and local governments. The Fixing America’s
Surface Transportation (FAS T) act, passed in 2015, included increased
expenditures from the Highway Trust Fund for infrastructure that
would be funded starting in 2017, causing state/local governments to
start planning projects. But in December 2016, a continuing resolution
was passed requiring expenditures to be no greater this year than they
were in 2016. Projects were halted or delayed as a result. Whether this
will be fixed in 2018 is difficult to predict.
Despite a decline in state/local government expenditures on
construction in 2016 and 2017, expenditures on equipment continued
rising. However, as of Q2/17, the equipment expenditures rate of
growth began to decelerate. Although expected to continue growing
through the first half of 2018, the decline in construction expenditures
will eventually lead to a decline in expenditures on equipment related
to construction, such as trucks and truck equipment.
Cyclical Expansion Continues
Despite these limits to growth, forecasts for truck sales and U.S.
economic growth are higher for 2018 than they were for 2017. More
employed people means more consumer expenditures. Wages aren’t
rising fast, but they are rising, and wage growth is expected to accelerate in 2018. Capital expenditures are likely to increase as well.
In sum, we are well into a long cyclical expansion that is not
yet over. Labor market imbalances will continue to affect the U.S.
economy in 2018. However, consumers and businesses are likely
to spend more in 2018 than they did in 2017. The rate of growth is
expected to accelerate slightly.
Commercial truck sales are expected to grow between 5% and 10%
in 2018. The heavy-duty segment of the market is expected to outpace
the rest of the industry after two years of declines. The medium-duty
segment of the market is expected to continue growing, but at a slow
rate. The light-duty segment of the market is expected to grow at a
rate of about 6%. m
STEVE LATIN-KASPER is the market data and research director for the
National Truck Equipment Association. He joined the NTEA in 1999
and provides research and analysis on markets and economic indicators
relating to the work truck and truck equipment industry.
This slow growth trend will also be exacerbated by demographic
shifts. As baby boomers continue to retire, their spending will
slow. College debt is one of the chief factors holding back personal
consumption expenditures. Although millennials outnumber baby
boomers, they are carrying a college debt load that consumes a much
higher percentage of their income than their parents paid at the same
age. Consumption expenditures account for about 65% of the U.S.
economy. If the growth of consumer expenditures doesn’t accelerate,
it is unlikely that U.S. economic growth will accelerate.
Wages are also a factor. While wages have been growing since
2012, they have not outpaced inflation. This has been true since the
1970s when inflation outpaced wage growth substantially. The infla-tion-adjusted average U.S. hourly wage peaked in January 1973. It fell
in the 1980s and early 1990s before climbing again in the second half
of the 90s. After the recession of 2001, it fell before stabilizing prior to
the Great Recession. It started growing again in 2012 and approached
the January 1973 level this summer. That helps explain why, in every
recession after 1982, the rate of growth in consumption expenditures
in the following cyclical expansion was lower than in the previous cycle
— not exactly a prescription for a high growth rate economy.
The Federal Reserve Board of Governors was well aware of the
labor market problems as the economy emerged from recession and
kept interest rates near zero for seven years in response. At this
point, monetary policy has become more conservative, and interest
rates will likely rise slowly but surely until the next recession. As
of September, interest rates remain historically low and are unlikely
to have a negative effect on truck sales in 2017 or 2018. It remains
unlikely that the Fed will raise rates more than 0.5 percentage points
in 2017 as long as inflation remains below 2%. Interest rates will
likely rise faster in 2018, but expectations of rising rates should cause
potential customers to buy sooner rather than later, which should
boost capital expenditures in 2018.
Markets Affecting Growth Rate
To get a better feel for growth prospects, think about the markets for
commercial trucks. The largest markets for commercial trucks and truck
equipment are the construction and state/local government sectors of
the economy, which are expected to do well in 2018. That is also true
for utilities, rental/lease, transportation/warehousing, distribution
and manufacturing. The only truck application markets with low 2018
expectations are agriculture, retail and mining (includes oil/gas).
Growth in the construction sector will likely affect the growth rate
of commercial truck and truck equipment sales the most. The same
labor shortage negatively affecting truck production is hitting the
construction industries. You can’t erect buildings without work crews.
In December 2015, the consensus forecast for housing starts called for
growth of 10%, while actual growth was about 5%. In December 2016,
the consensus forecast for housing starts was around 10% again. At the
moment, actual growth is expected to be about 5%.
Forecasters have accordingly ramped down expectations for 2018,
with good reasons. Millennials are in the mood to buy as they start
to form families, but contractors can’t build new houses fast enough.
That’s why the prices of existing homes are going up so fast around
most of the U.S. Unfortunately, that led to a higher than historic
average cost of housing as a percentage of income, which exacerbated
Commercial truck sales are expected to grow between 5%
and 10% in 2018. The heavy-duty segment of the market is
expected to outpace the rest of the industry after two years of
declines. The medium-duty segment of the market is expected
to continue growing, but at a slow rate. The light-duty segment
of the market is expected to grow at a rate of about 6%.