Heavy Duty Trucking, June 2018

HDT JUNE 2018 20 WWW TRUCKINGINFO COM Hotline TRUCKINGS MOST RESPECTED BUSINESS REPORT Watch ECONOMIC Expect more of the same If you listened to President Trump late last year tax reform was going to make the U S economy great again Days of the gross domestic product expanding at an annual rate of pre Great Recession levels of 3 or better were to return But that hasnt happened so far Lets look at the GDP in the first quarter of the year the beginning of when tax reform took effect The GDP expanded again at a 23 annual rate But thats down from a rate of 29 in the final quarter of 2017 before tax reform took effect So what happened The biggest contributor to the economy consumer spending slowed its increase to an annual pace of 11 down from a 4 annual growth rate in the fourth quarter according to the first of three Commerce Departments GDP estimates released in late April As a consumer based economy the fastest way to derail the U S economy is a slowdown in overall spending patterns said Stifel Chief Economist Lindsey Piegza To be fair the U S economy has historically experienced weaker growth at the start of a new year compared to the previous quarter as consumers spend amid the holiday season And in fact this was the best first quarter GDP performance since the first quarter of 2015 But it was no better than last years 23 average rate of expansion In other words so far the economy isnt doing measurably better than before the tax laws took effect Tax reform was expected to mitigate that typical pattern of lower first quarter performance Piegza said What we saw instead was consumers spending in anticipation of a possible bump in after tax take home pay an increase which for many failed to materialize into a meaningful increase in income and thus offered minimal support to first quarter consumption In other words the backbone of the American economy consumers so far hasnt seen that big of a boost in pay from lower tax rates Dont get me wrong there were winners in this tax reform package Large companies including many in trucking saw their maximum tax rate drop 40 The result has been greatly increased quarterly profits And while this is good for their businesses there are questions as to how much it will translate into faster growth for the economy especially in light of firstquarter GDP performance The average Joe is getting little federal tax relief as the cost of living continues to rise While surveys show consumer confidence sentiment is high the overall gains in the surveys are for those at the higher end of the income ladder Looking ahead the Federal Reserve is expected to increase interest rates more this year and into 2019 raising borrowing costs while cutting into spending Plus there are indications consumers are going to pay higher prices for goods due to increasing freight rates triggered by tight capacity coupled with higher retail inflation I wouldnt bet the economy is going to kick into high gear with sustained growth of 3 or better Evan Lockridge Business Contributing Editor elockridge@ truckinginfo com Evan Lockridge covers business and economic news for HDT both in this monthly column and on Truckinginfo com A freelance writer he has been covering the trucking industry in print online and on the air since 1991 Real Gross Domestic Product and Related Measures Percent Change from Preceding Period 6 5 4 3 2 1 0 1 Q1 Q2 Q3 Q4 2015 Q1 Q2 Q3 Q4 2016 Q1 Q2 Q3 Q4 2017 Q2 Q3 Q4 2014 Q1 2018 Seasonally adjusted at annual rates While first quarter economic growth was higher than the previous two years consumer spending numbers raise concerns SOURCE U S DEPARTMENT OF COMMERCE