Market Report: 100 days of Trump

It’s safe to say that the landmark election of Donald Trump as President of the United States (POTUS) had many an expert wondering as to how a non-politician would run the world’s largest economy, and how the US transportation industry would react to his leadership.

After 100 days in office, the statistics seem to speak for the 45th and current US President. Investment in commercial trucks and trailers, for example, traditionally drops before a presidential election due to increased uncertainty and only recovers slowly once the new administration is confirmed. Trump managed to change that long-standing dynamic: While the expected pre-election drop was amplified by heated political rhetoric and dire predictions during the 2016 campaign, fleets started ordering again swiftly after his win, and in volumes higher than anticipated.

In fact, Trump’s election almost served as a business catalyst. Orders usually increase in October and stay elevated until December as transport businesses pre-plan for the year ahead. In 2016, orders for trucks and trailers did not spike until November as a direct result of the election, but remained strong all the way through to February – significantly elongating the traditional order cycle.

In line with that, business sentiment has been soaring across the board, with consumer confidence hitting a 16-year high and small-business optimism on track for a 13-year high. One obvious reason for the conficence hike is that although the economy slumped a little during 2016, the US did not go into a recession and is likely to resume growth – making for a generally positive business outlook. But it’s also Trump himself: The Obama administration was viewed largely as pro-regulation and anti-business by many companies in the trucking realm, so with a business magnate like Trump in charge, they are expecting a much more balanced political dialogue. Consumers are feeling upbeat too – mostly because the election is over – and the job market is improving as well.

One key statistic that doesn’t quite fit in the picture, at least at a first glance, is heavy-duty (Class 8) truck sales, an important indicator for the articulated trailer market. The monthly Class 8 truck build rate declined 54 per cent from June 2015 to December 2016, arguably in anticipation of a recession that never materialised. However, it has increased again over the last two months, and most experts expect the worst to be over now – another win for Trump.

The good
So where from here? In a best-case scenario, the transport industry will continue to flourish. While trucking was a favourite regulation target of the Obama administration, President Trump has promised to roll back and eliminate restrictive regulations – so expect that most pending, non-safety-related legislation will either be delayed, changed or eliminated altogether. In addition, future greenhouse gas standards on both trucks and trailers could be modified.

During his campaign, President Trump also promised a tax reform. Many small businesses – including those in the transport space – believe they are over-taxed, so if they end up having more money to invest, it could help equipment sales and other sectors of the industry. The same broad stimulus could come from a planned increase in infrastructure spending, which could increase freight and improve truck traffic flow.

If there is one good outcome of the election, it is that trucking is now viewed as a ‘favoured’ industry. While it often appeared the Obama administration viewed trucks as something that polluted the air and endangered the highways, the Trump team is more open to the idea of collaboration. A case in point: On 23 March, the President of the American Trucking Associations (ATA), ten leading industry executives, and 12 truck drivers were Trump’s guests at the White House to discuss issues affecting trucking. They also brought along a high-tech truck/trailer combination in which the President was photographed sitting in the driver’s seat.

The bad
All this would indicate there will be a much friendlier business climate for the industry under the new POTUS – but there is a downside to his agenda, too. Most prominently, President Trump wants to renegotiate the North American Free Trade Agreement (NAFTA), which helps streamline cross-border logistics between the three countries involved – the US, Mexico and Canada. Any changes to this highly sensitive system could disrupt supply chains and cause major issues for the North American road transport industry.

President Trump also plans to renegotiate trade agreements with China and other countries, a potentiate for multiple trade conflicts – even trade wars – if negotiations turn sour. Naturally, any such outcome would have a deleterious impact on the economy, exports and freight.

And there’s more to worry about. Interest rates are likely to keep rising under Trump’s tenure, given they have been kept artificially low since the Great Recession. In fact, they have already risen to a point where they could discourage borrowing and put a crimp in economic growth.

As such, there is still a great deal of uncertainty about the Trump presidency, and it won’t go away any time soon. There are master plans to bring manufacturing jobs back to America, for example, but what do they look like? There is also a new strategy in place to deal with conflicts around the world, but will it isolate the US? There is a new immigration policy, too, and a looming healthcare crisis that still needs to be dealt with. Missteps in any one of these areas could lead to an economic downturn.

The realistic
What we can say about the US economy going forward is that it was improving before Trump took office and is likely to continue to do so. Trump may not be responsible for what happened in Q1, and he probably won’t have much impact on Q2, but both consumer and business confidence are still gaining steam, similar to giving a slight push to an object already in motion. Likewise, the impact of a ‘Trump Bump’ on the US stock market is also exaggerated.

While most economists don’t expect the economy to grow more than 2.5 per cent in 2017, there is some upside potential if the confidence numbers turn into actual money spent. After all, a moderately growing economy will generate modest freight growth, which in turn will support a basic replacement demand of trucks and equipment – the Class 8 truck build rate is forecast to increase 1.6 per cent in 2017, for example. Trailer production is expected to decrease around seven per cent, but will still be strong from a historic perspective.

The wild card
One aspect of the Trump presidency that simply can’t be overlooked – or measured – is the pronounced increase in uncertainty. There are a variety of factors in play that could have a significant impact on both economy and freight markets in either direction. If all of Trump’s economic plans work brilliantly, most experts agree the US economy would grow at rates not seen in years. Conversely, if Trump makes some big mistakes, the negative economic impact could be severe. As a result, US trucking is now an environment with a much higher upside and much deeper downside than before the election.

Trump image credit: Joseph Sohm/Shutterstock

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