Many logistics providers are likely concerned that last week’s real gross domestic product (GDP) data for the US showed a second consecutive quarter of negative growth. While there is no doubt that economic growth in the US has slowed substantially from the breakneck pace experienced last year, a closer look at the subcomponents for GDP suggests that domestic and international transportation providers can expect demand to hold strong through the remainder of 2022.
Below are five key insights for transportation providers to consider:
(1) Demand for goods continues to outpace pre-COVID-19 levels by a substantial amount. While seasonally adjusted and inflation-adjusted spending on goods declined 1.1 percent from the first quarter of 2022, demand for goods remained 4.9 percent above where the pre-COVID trendline estimated for 2017-2019 placed goods demand in Q2 2022. Real spending on goods was up 16.1 percent from Q2 2019. On a non-seasonally adjusted basis, real spending on goods increased 6 percent in the second quarter from the first quarter. Given this fact, coupled with the slow pace of decline in seasonally adjusted spending on goods since the peak in the second quarter of 2021, it seems unlikely that demand will suddenly fall in the back half of 2022.
(2) While real imports of goods were flat on a seasonally adjusted basis in the second quarter from the first quarter — but increased 5.3 percent on a non-seasonally adjusted basis — volumes remained 8.5 percent above the pre-pandemic trendline. Real imports rose 9.2 percent year over year and 16.2 percent from the second quarter of 2019. Historically, when the year-over-year percentage change in real imports approaches zero, there is either an economic recession — as in 2021 and 2008 — or a freight recession — as in 2016 and 2019. Consequently, that imports remain this elevated on a year-over-year basis does not indicate that a recession is imminent.
(3) Despite numerous articles written about excessive inventories, the ratio of real non-farm inventories to real goods spending remains substantially below the levels observed prior to the -COVID-19 pandemic. For example, in the second quarter of 2019, this ratio was 0.57, compared with 0.50 in the second quarter 2022, an 11.9 percent difference. While this ratio has certainly increased from the 0.46 nadir observed in the second quarter of 2021, it suggests there is still a need for rebuilding inventories in certain sectors, such as motor vehicles. As such, it is important to avoid over-generalizing from the inventory woes experienced by some large general merchandisers such as Walmart and Target.
(4) Despite the dollar being incredibly strong relative to other currencies, US exports increased 3.7 percent between the first and second quarters of 2022. On a non-seasonally adjusted basis, this increase was larger, at 5.1 percent. This suggests demand for American products despite the higher costs other nations are paying for them.
(5) The seasonally adjusted cooldown in residential fixed investment needs to be put in context given the strength of the 2021 market, coupled with the key role that seasonal adjustment plays for this series. On a seasonally adjusted basis, we saw a 3.7 percent decrease in the second quarter from the first quarter, with the caveat that the non-seasonally adjusted data increased 17.2 percent, indicating the seasonal adjustment model expected an increase of 20.9 percent under standard seasonal conditions. Given this degree of seasonality, some caution is warranted in reading too much into this decline since the data will be revised. Furthermore, real private residential fixed investment was up 11.2 percent from Q2 2019.
Taken together, the more granular data that underlies the GDP statistic suggests demand for transportation services, both domestic and international, is unlikely to cool substantially as we move through the second half of 2022. Rather than falling off a cliff as some have foretold, it appears we are moving toward a phase where freight markets are normalizing after two years where nothing has been normal.
Contact Jason Miller at email@example.com.