Blog after blog and column after column have bemoaned the slowness of the US economic recovery, and long-term data could suggest they are right. But beneath the surface, a new perspective is gaining momentum – one that is far more bullish than many an analyst would dare admitting.
Peering through winter-storm distorted data, industrial figurehead General Electric posted strong financial results in April and told investors that order activity remained strong, and both Honeywell and Caterpillar followed suit the same month. 
ACT Research added to the buildup by announcing “large fleet commitments” were providing support for the transport equipment industry – even though the actual order volume was down eight per cent month-over-month. According to ACT’s Director of CV Transportation Analysis and Research, Frank Maly, the first six months of the current order season generated some 165,000 net trailer orders, up 22 per cent year-over-year – reason enough to assume the April drop was a seasonal phenomenon.
Fellow US research company, FTR, has also revised its 2014 outlook and is now forecasting an order volume of around 248,500 units – nearly six per cent up compared to 2013.
But, why is there such ambiguity in the US market? One reason may be the struggling housing market. According to Neil Irwin, a senior economics correspondent for The New York Times, housing is nowhere close to pulling its economic weight except in a few booming markets like San Francisco and New York. “Investment in residential property remains a smaller share of the overall economy than at any time since World War II, contributing less to growth than it did even in previous steep downturns,” he says. “If building activity returned merely to its post-war average proportion of the economy, growth would jump this year to a booming, 1990s-like level of four per cent, from today’s mediocre 2-plus per cent.”
As bank lending is now thawing and over-supply is being reduced, that scenario could soon become a reality and bring some much-needed optimism back to the trailer manufacturing community; but the industry has become cautious. Many an executive is still observing where the economy is heading before joining the recovery bandwagon, afraid we are facing the calm before the next storm.
“There is definitely a high correlation between the health of the US economy and the health of the trucking industry,” says Great Dane President Dean, Engelage. “What growth we’ve seen has occurred in starts and stops rather than in a continual period of economic expansion, a trend we expect to continue. Until we actually have a meaningful recovery and there is confidence of future profitability, most of the demand we will have is replacement demand of old equipment as opposed to real growth demand.”
Despite that uncertainty, Great Dane is still on track to finish the year on a positive note – indicating that Wall Street’s bullish attitude may be sure-footed. “We’re cautiously optimistic about 2014 … given some recent strength in key areas such as manufacturing, housing and automotive production,” Engelage explains.
According to FTR Consulting’s trailer specialist, Don Ake, Engelage’s optimism is backed by a large increase in Class 8 truck orders. “The current North American forecast is 292,000 units – and this implies that fleets are expanding capacity. They usually plan their power unit requirements first and then order trailers,” he says.
Although carrier capacity in North America is still tight as fleets ‘right-sized’ after the recession – resulting in very little excess capacity – Ake is still expecting “modest” freight growth.
“This is enough to push equipment demand. Already, dump trailer and dry tanker trailer demand is up over 20 per cent due to increased road construction projects as government revenues continue to strengthen. Liquid tanker demand, meanwhile, is being driven by the energy industry. This is also helping flatbed trailer sales, as is increased housing construction.”
Caught somewhere in between post-GFC caginess and the new optimism displayed by the research community, the US trailer building industry is therefore preparing for a slow and steady recovery – all while exploring new sales channels that could make it less vulnerable to market volatility in case the big league has been too bullish too quickly.
Industry powerhouse Wabash National, for instance, is exploring new growth opportunities in Australasia and runner-up Great Dane is slowly feeling its way into South America and Asia. In China, the company is now part of a joint venture with Henan Bingxiong Refrigerated Truck Co, also trading as Ice Bear.
“While the Chinese economy is slowing from its earlier frenetic growth rate, there is still absolute growth occurring in China,” says Engelage. “We see a lot of opportunity to upgrade the country’s out-dated refrigerated transportation infrastructure in both the near and long term.”
Wabash National, meanwhile, has already begun expanding into the Australian market after signing a distribution agreement with local company, Mezz Trailers.
“The relationship with Mezz Trailers is another step in executing Wabash National Corporation’s strategic plan as we expand into new markets,” says President and CEO, Dick Giromini. “Although manufacturing a product for export can be challenging, our manufacturing operations are capable of building to a diverse set of customer needs,” he adds, indicating just how serious the company is taking Australasia as a future market and how important a broad-based strategy has become.
In fact, vigilance is the latest craze in an industry that is still trying to exit the vicious cycle it has been stuck in for so long and that is best embodied by the murky housing market. “A moribund housing market saps the economy of strength, and the ensuing weakness – high unemployment, slow wage growth – means that fewer people are leaving the nest for a home of their own,” Neil Irwin explains.
As a result, it’s important to remain wary about what’s going on in the marketplace, according to Noël Perry, a senior consultant at FTR Transportation Intelligence, who used the company’s April webinar to recap that productivity-draining regulation and bad weather added to the toxic mix of unemployment, debt and broken consumer confidence.
But, as the snow is melting and the weather alone can’t be blamed for poor economic performance anymore, optimism is gradually returning – starting with the spot market. “For most of this winter, there was an extraordinary amount of freight being offered on the spot market, but we didn’t see the underlying economic growth,” says Peggy Dorf of US research company, DAT. “That’s because the snow and ice blocked roads and disabled trucks so often during January and February, disrupting supply chains and hampering fleet productivity. The contract carriers couldn’t get those lost days back, and they had schedules to keep, so the pipeline just kept filling.”
As an abundance of exception freight usually indicates robust economic activity, Dorf’s conclusion is that bad weather wreaked havoc to an otherwise solid economy since the start of 2014. And she may be right. As soon as the snow stopped falling, key sectors began to rebound. 
Retail sales, for example, increased 1.1 per cent in March – the largest month-to-month rise since September 2012. Economists were also heartened when automakers announced that they had sold, at an annualized rate, 16.4 million new cars in March – the highest number since June 2006.
Although Dorf’s team is expecting freight volume and rates to remain “very dynamic” through Q2 and the next, the transport equipment market is now following GE’s example and displaying cautious optimism again.
CNN’s Christopher Matthews rightly summarized in an April article: “It’s easy to make fun of economists and their predictions. After all, anybody predicting the future is going to be wrong much more often then they are right. But at least at this point, it looks like blaming poor data on unseasonably cold weather was actually right. The economy is picking up where it left off in the fall: slowly, but surely, recovering.”