The U.S Federal Reserve cut interest rates in September by a half point for the first time in four years and is expected to lower interest rates at their meetings on Nov. 6-7. This interest rate cut comes as inflation is down to 2.4% in the United States. These levels of inflation and interest rates are a marked improvement from what we have experienced over the past two years.
However, there were only 12,000 net new non-farm jobs created in the United States in October 2024. While this may be partially related to the major climate events and the Boeing strike, this begs the question as to whether this was a unique month or indicative of a slowing U.S. economy. The U.S. election is just a few days away.
What economic changes can we expect because of the election in the United States?
It is likely that the Fed will continue to lower interest rates to avoid a recession and a “hard landing”. The hope is that this will minimize reductions in employment levels and maintain staffing levels during a possible slowdown.
Both Vice President Kamala Harris and former President Trump have been proposing a range of changes to entice voters to cast their ballot for them. Their ability to initiate changes will depend on which party or parties gain control of the House and Senate.
The economy and market don’t march to the president’s or the House or Senate’s drum, particularly if different parties control the different branches of government. Other factors such as campaign promises, politics, or world events can take precedence. Many campaign proposals don’t make their way into law, presidential executive orders, or bureaucratic rulemaking, because of the checks and balances built into the two systems.
Trump proposes extending tariffs on a broad range of goods with a sixty percent tariff on goods from China. If Trump is elected and additional tariffs are introduced, this will likely raise prices on many imported goods and be inflationary.
He also proposes extending the low tax provisions in the Tax Cuts and Jobs Act beyond the year-end 2025 sunset date, regardless of household income, including tax rates on individuals, estates, capital gains, and dividend income, among other provisions. He seeks to eliminate partial income taxation on Social Security retirement payments. Note: To pass in the Senate with 51 votes (reconciliation process, no filibuster), the tax package cannot increase the deficit beyond a multiyear budget window, as assessed by government scoring entities. Trump would likely seek to have any additional tariff revenue estimates factored into the calculations.
Harris proposes to extend the low tax rates for most taxpayers but is in favor of raising taxes on households with incomes above $400,000 per year and increasing the long-term capital gains tax to 28 percent from 20 percent for those earning $1 million per year or more. She would boost the TCJA child and small business tax credits and would introduce a new tax credit for certain first-time homebuyers. The question is whether the supply of housing will match a potential increase in demand.
Harris advocates raising the corporate tax rate to 28 percent from 21 percent, which is lower than the pre-TCJA tax rate of 35 percent. While Trump had previously advocated lowering the corporate rate to at least 20 percent, more recently he proposed reducing the rate to 15 percent for companies that manufacture goods in the U.S., with some restrictions.
What do these proposed changes mean for Shippers and Carriers?
Bob Costello, Chief Economist at the American Trucking Associations described the current market conditions at a recent industry breakfast as “rebalancing pains”. He pointed out that the general economy has been slowing despite its overall resilience but also anticipates that the main drivers of truck freight aren’t going to get much worse.
Costello stated that “The Fed will continue to decrease interest rates at a moderate pace. That will all help, just understand two things: It takes a long time for both increases in the fed funds rate and decreases to work their way through the economy, and mortgage rates have already fallen a fair amount. So that’s going to slow or go down at a slower pace”.
Costello expects the trucking industry to slowly start improving rather than seeing a boom in activity. The October job growth figures would further support this statement. Trucking conditions continue to improve, according to FTR’s Trucking Conditions Index. That’s largely driven by falling diesel prices, as freight conditions remain tough. There is far more equipment than there is cargo to carry.
“I do think supply is coming out, but there’s got to be more, and I think more will be coming even if freight picks up a little bit,” Costello said. This theme was supported by Craig Fuller, Founder and CEO of FreightWaves, in Friday’s “State of Freight – Election Special”. In September, there were 1,300 carriers that exited the market for the third straight month. New carrier entries, meanwhile, declined by 5.1%.
In 2025, rising freight rates will likely stabilize the market, with older trucking companies better positioned to stay afloat. “Trucking is en route to more favorable conditions next year, but the road remains bumpy as both freight volume and capacity utilization are still soft, keeping rates weak,” said Avery Vise, FTR’s vice-president of trucking. “Our forecasts continue to show the truck freight market starting to favor carriers modestly before the second quarter of next year”.
As the freight market rebalances, shippers need to focus on those carriers that are best equipped to meet their needs and to conduct their carrier procurement exercises to negotiate favorable multi-year freight rates before inflationary pressures return.
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