In the past week, several Twitter users have pointed to government data on retail sales of heavy-duty trucks as one reason why a recession is far off.
Two examples:
The context of their posts is that because of robust truck orders, the freight market must also be robust. And since the freight market is robust, they believe, it means that the U.S. economy is also robust. They have good reason for believing this. After all, new truck orders are at very high levels and, in a normal cycle, there is a correlation between robust truck orders and freight demand.
However, FreightWaves readers likely know better. The freight market is not robust. In fact, it is one of the most difficult freight markets in recent years, with comparisons to the 2009 economy among some fleet executives.
The Twitter posters can be forgiven.
They are likely just pulling random data charts and drawing their conclusions with little to no freight industry experience and little context.
But why are new truck orders robust?
COVID screwed up the heavy-duty production cycle
There is a backlog of heavy-duty truck orders. Therefore, the data is not telling us what some think it does.
In a normal economy, the health of the freight market is correlated with new truck order data. Not this time. The collapse in the freight market is well-documented from a range of sources, including leading industry surveys and bank reports on nationwide freight expenditure.
New truck orders are continuing at robust levels, while the freight market collapses. This shouldn’t happen, so why is this cycle different?
Midsized and large fleets — 100 trucks or more — buy their trucks at regular intervals, regardless of the economy. In fact, some increase purchases during recessions — thanks to incentives from original equipment manufacturers and easy access to drivers.
Forty-two percent of the trucks on the road are held by fleets with more than 100 trucks.
From 2020-2022, midsized and large fleets were not able to get new truck allotments due to supply chain shortages and a strong retail truck market.
The midsize and large fleets also held on to trucks longer than usual — two years longer than normal. Some fleets delayed orders in 2020 because of the unprecedented uncertainty and then continued to hold off in 2021 because of the inability to find truck drivers to “seat their trucks.”
Now, truck drivers are much easier to find, uncertainty about an “apocalypse” is long forgotten and those trucks they held onto for two extra years are worn out.
The largest fleets also know that with the availability of truck drivers (so long “shortage”), they will be able to grow market share. So what is occurring in truck order data is not related to robust freight demand, but rather a bulking of orders from the COVID economy among midsized and large fleets.
The OEMs are aware that the freight market is in recession. This is why they aren’t ramping up production to burn off the backlog. OEMs will keep production at current levels, hoping to time the cycle just in time for a rebound.
It is possible that the truck OEMs will miss the recession this time around.