Hopeful Economic Signs Dim, ATA’s Costello Says
Chief Economist Notes That Impact of Tariffs Is Delayed by Early Stockpiling
Key Takeaways:
- Costello noted that indicators early in the year were trending in a positive direction, but "that has changed."
- He warned that the true impact of tariffs has barely been felt since so much cargo was brought in early.
- “Any recovery in trucking is not going to come from the demand side, not anytime soon,” Costello said.
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SAN DIEGO — American Trucking Associations Chief Economist Bob Costello said early-year indications of a burgeoning economic recovery have given way to renewed caution, telling the crowd at ATA’s Management Conference & Exhibition that businesses remain hamstrung by ongoing trade policy uncertainty.
“These continue to be unprecedented times — it doesn’t mean it’s all bad, but I’m going to give it to you straight, folks,” Costello said during an Oct. 27 economic presentation. “If you go back to the first quarter, I was talking about ‘green shoots’ in terms of demand. I was talking about how we’re starting to see some better things happen, develop. And obviously that has changed.”
Costello noted that imports, existing home sales, single-family housing starts, exports, factory output, retail sales and non-residential construction spending were all trending in a positive direction at the beginning of the year, only to stall.
He said that while the first quarter saw a 0.6% dip in gross domestic product, Q2 posted a 3.8% gain. But he noted those swings were impacted by companies front-loading shipments ahead of tariffs.
The audience listens attentively to the economic presentation. (John Sommers II for Transport Topics)
“The underlying economy in the second quarter was much weaker than the 3.8%,” Costello said. “Third-quarter numbers are going to be good. It’s going to be over 2%, could be as high as 2.8% — that’s our baseline forecast.”
While he expects the fourth quarter to be a little weaker than that, he doesn’t see GDP going negative for the year.
He warned, however, that the true impact of tariffs has barely been felt since so much cargo was brought in early. And he raised a cautionary note about the effect tariffs are having on manufacturing and the broader labor market.
Packed house as Chief Economist Bob Costello delivers his economic outlook and breaks down the latest indicators on the goods economy. — American Trucking (@TRUCKINGdotORG)
Costello pointed specifically to the Purchasing Managers’ Index, which was growing above historic growth thresholds at the start of the year but is now trending down. He pointed to data that indicates the U.S. manufacturing sector cut 42,000 jobs over the last four months.
“Now, why would that be if tariffs are supposed to help them?” Costello asked. “We’re all [focused on] imported cars and appliances and all these finished goods. That is absolutely true. But about 50% of what we’re importing are semi-finished products used in our [domestic] manufacturing process. So as those imports have higher prices because of the tariffs on it, it hurts U.S. manufacturers.”
He noted that the U.S. economy is the second-largest manufacturing economy in the world, responsible for about 16% of all global manufacturing.
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Costello stressed that the country’s manufacturing base has been a key driver of freight, especially as the consumer base has leveled off in the wake of the high of the coronavirus pandemic and subsequent lows when spending reverted to services over goods.
“Any recovery in trucking is not going to come from the demand side, not anytime soon,” Costello said. “We’re still at low levels of freight. … That’s why it’s been tough out there for your fleets. This has yet to recover.”
