Don’t bet on economic growth between now and 2019, says FTR’s Perry

FTR Senior Partner Noel Perry noted at his firm’s transportation conference in Indianapolis last week that average recovery growth for GDP continues to decline, from 7 percent in 1950 to 1 percent in 2016, which means that there will not be much help coming from economic growth over the next 2-3 years, with a best case scenario being 2-3 percent growth during that span.

“No matter what Janet Yellen, or the next President wishes about when it comes to the economy, it ain’t gonna happen,” he told the audience of 400 freight transportation and logistics professionals.

As for the things that drive freight, Perry said that historically freight lags GDP even during a recovery. But as GDP increased by 2.1 percent in the most recent economic recovery, modal recoveries varied, with trucking at 3 percent, while rail, intermodal, and barge fell 8 percent, 4 percent, and a little over 6 percent, respectively.

With downside economic exposures greater than upside ones, Perry said that means economists are more worried than optimistic, telling the audience that in their strategic company outlooks they should be planning for a recession in the next 3 years.

“We are now equal to the fourth longest recovery on record…while most recoveries are over already,” he said. “The good news is two of those recoveries are longer than what we have had so far so we are going to hope the economy has not changed in some fundamental way and we are going to slump into recession. But even the best recovery from a length standpoint in our lifetime ran for nine years, and if we equal that record, given all the problems we have in the world economy, we may get a recession in 2019. And when something is 30-40 percent likely, which is the general likelihood of a recession in the next 2-3 year, as stated in the newspapers, then you should prepare for it. In a way, it is like getting your shovel ready for a storm, because you know it is coming.”

Looking at freight transportation modes, Perry said that trucking over all is down a bit and not in recession from a macro standpoint, but there are some sub-sectors that are fairly weak like dry van. But in rail, intermodal, and barge, he said it definitely feels like recession. 

“Things are changing in this business, and the economy is a really important driver,” he said. “The next five years are going to be extremely uncertain and dynamic. What the historical data says very clearly is when you are late in a recovery, the exposure to another recession rises. Over the next three years, base case expectations should be very conservative. What we know about transportation is that…late in recoveries it performs below the level of GDP, so if GDP is at 2.1 percent, your [growth] number is going to be lower. Don’t bet the farm on growth unless you are going to steal market share from your competitors. It is really important to have a recession plan in your back pocket and be prepared for that exposure.”