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Confident Consumers, Tightness and Tariffs - August 28, 2018

The Confident Consumer Continues Undaunted

Tuesday saw the release of the Conference Board Consumer Confidence Data, which came in firing on all cylinders, increasing to its highest level since October 2000. Lynn Franco, Director of Economic Indicators at The Conference Board, reported that

“Consumers’ assessment of current business and labor market conditions improved further. Expectations... bounced back in August and continue to suggest solid economic growth for the remainder of 2018.”

With both current conditions and expectations improving, consumers’ outlook of the labor market improved as well. The net perception of the availability of jobs, which marches to the same drum as the unemployment rate, hit levels last seen in 2001, and net expectations of future income, which moves roughly with the Atlanta Wage Growth Tracker, was just a hair short of the all-time high set in December of last year. However, the positive short-term outlook was not unanimous and more businesses than last month expect worsening conditions.

Tightness and Tariffs Affecting Trucking and Beyond

While the consumer continues to be confident in the labor market, the tightness is beginning to worry the trucking industry. Though it has been mentioned in previous commentaries, the issue of labor tightness could be coming to a head, with this month’s FTR State of Freight leading with an article titled ‘Too Little of a Bad Thing Could Stifle Growth: Like trade, very low unemployment could slow the economy.’ The article states that “The question is whether there will be people to fill the jobs that would be necessary to meet anticipated demand”. And though just one regional voice, a respondent to the Dallas Fed Manufacturing Survey didn’t mince words, stating ‘[W]e can’t find CDL drivers to pick up or deliver goods.’ Labor tightness was also an issue voiced by respondents of the Richmond Fed Manufacturing Survey, where the Availability of Skills Needed hit -17, the lowest value on record. Respondents anticipated continued issues,

“Firms expect this struggle to continue in the next six months but anticipate sustained employment growth as well.”

However, labor tightness took a back seat in the worries expressed in the Dallas survey, as tariffs were most commonly cited as an issue. Two respondents stated concisely, “Tariff threats are problematic” and “Tariffs are an issue for our customers”. However, as covered in FTR’s July State of Freight, truckers and transportation are already feeling the squeeze, having issues sourcing aluminum and steel, with

“Industry sources tell[ing] me that more than 30 parts are in short supply at truck OEMs.” And,

“Soon U.S. manufacturers will need these materials to make parts, components and products – some for the truck OEMs. To a supply chain already performing poorly, the tariffs hitting at this moment just adds to the mess.”

While the recent headway made in trade talks with Mexico could be a ray of hope for businesses hoping for cessation of trade dislocations, the effects of the saber rattling appear to be working themselves into the supply chain and time will tell if there’s enough sand in the gears to slow down the economy.