Originally appeared in Fleet Owner
We are in the fourth quarter of the year, which is a good time to start planning for 2024. Proper planning requires an understanding of the larger economic issues that will impact the trucking industry.
Sarah House, senior economist and managing director at Wells Fargo Corporation & Investment Bank, recently shared insights about the U.S. economy.
During a recent NationaLease meeting, she began her presentation by focusing on inflation. Her view is that the easing pressure on the supply chain is helping to reduce goods inflation and that inflation in the housing market is poised to slow sharply. Inflation in the other service sectors, however, will moderate more slowly, she said.
“Inflation should continue to trend lower,” she said. “However, progress is expected to be slower going amid a smaller downdraft from food and energy.”
House then moved on to talk about the labor market, indicating that labor costs have moderated, “yet continue to run too hot to be consistent with the Fed’s inflation goal.” The labor supply seems to be improving depending on which sector you are in. In fact, “demand for workers has cooled sharply, without much of an increase in unemployment,” she explained.
A further slowdown in hiring is expected, she said, with businesses reducing temporary workers and reducing their reliance on them.
During the past several years, consumers relied on savings and credit to make purchases. “Households’ reliance on pandemic-era savings and debt to fuel spending is wearing thin,” she said. On top of that, lenders are tightening credit standards, which can impact consumers’ ability to get credit.
The manufacturing sector has faced costly financing for capital equipment along with softer consumer demand.
Based on these and other factors, House said that Wells Fargo expects the U.S. economy to fall into a mild recession early in 2024. “We do not expect a downturn to be as severe as the recessions in most recent memory,” she says.
Here are her key takeaways on several economic indicators:
- Inflation: Improving supply and weakening demand are helping to drive inflation lower. However, price growth remains too high, with a timely and sustained return to target far from assured.
- Labor Market: The tight labor market is contributing to elevated inflation. The jobs market has started to cool, but there remains some distance to go before it comes into balance.
- Spending & Investment: Consumer spending has offset a retrenchment in housing and capex. While housing is finding a footing, consumer finances are deteriorating as savings decline and real income sputters.
- Monetary Policy: The Federal Open Market Committee tightening cycle has likely ended. Inflation’s duration and severity means cuts won’t come soon, however, without a decline in activity and higher unemployment.
- Recession Watch: The endurance of hiring and spending means a recession is not imminent, but a downturn is likely early next year as tighter and costlier credit leads to a drop in spending and investment.
Consider these economic indicators as you plan for 2024, along with other factors that are specific to the markets you serve and your own corporate goals.