Cautious Optimism

Fear of the virus and government shutdowns caused a notable shift in consumer buying habits. Favorable projections hinge on consumer’s maintaining unusually high levels of spending on goods relative to services. We don’t think this will continue.

Typically in January, transportation and logistics analysts offer forecasts for the coming year.  While there are a few outliers, nearly all forecasters are bullish on the trucking sector.  Enthusiasm stems from the exceptional demand for E-commerce that began during the pandemic lockdowns and has never abated.  COVID-19 kept consumers out of the stores and on their devises placing orders.   For many carriers, the accelerated shift to on-line purchases produced a challenging yet rewarding peak season.    

Contract and spot rates are now expected to climb well into 2021.  Accordingly, fleets small and large placed record-level orders for trucks and trailers.  

However, iLevel’s Road Scholar advises caution.  Favorable projections hinge on consumer’s maintaining unusually high levels of spending on goods relative to services.  We don’t think this will continue.  

Good and Services

Fear of the virus and government shutdowns caused a notable shift in consumer buying habits.  Consumers naturally decreased leisure and hospitabilty spending (services) but accelerated purchases of goods – household products.    This change in turn prompted  significant increases in manufacuting activity.  

All of this means more freight to haul!  

Yet these changes are not permenant.   For decades, spending on goods has been a steadily decreasing portion of overall spending.  Only last year did this trend stop.   

In 2000, spending reperesented 36.4% of overall spending.  And by January 2019, spending on goods had reached a historic low of less than a third – 30.5%.  Then the pandemic hit. During the spring stay-at-home orders, spending on goods rose –  an astonishing 2%.  The trajectory continued into summer reaching nearly 34%.  Goods spending now clearly exceeds pre-pandemic levels while service spending remains depressed (see chart below).  

Source: Bureau of Economic Analysis

But now, as states roll-out their vaccination programs we expect a sharp rebound of service spending.   After a year of social distancing, limited holidays, and government mandates, consumers crave leisure activities including vacations, sporting events, dining out, and celebrations with friends.  The pent-up demand is papable.   

Vaccination programs will quickly beomce efficient and by late second or early third quarter we will anticipate spending on goods and services to return to past patterns.  

So be cautious about optimistic forecasts, the American consumers’ appetite for lesiure and hospitability services will return and return with vengeance.       

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