NTEA’s OEM month-to-month chassis gross sales outlook is at present anticipating 2022 to be flat total in comparison with 2021. The forecast for 2023 requires gross sales to develop by roughly 4% total, with gradual development by means of 2026.
Main indicators round GDP, residential funding, unemployment fee, private expenditures, and the buyer worth index are pointing to a recession within the U.S. this yr — however how extreme and long-lasting will it’s? And the way will these components have an effect on the industrial truck and gear business market?
A dialogue of those points shaped the premise of the webinar “Understanding Market Dynamics Influencing the Work Truck Business in 2023,” introduced by NTEA’s economist Steve Latin-Kasper on Jan. 11.
Listed here are the important thing takeaways.
GDP Will Go Unfavourable, However When?
Final yr was characterised by unexpectedly sturdy GDP development within the third quarter. The fourth quarter of 2022 is anticipated to indicate slower GDP development, stated Latin-Kasper, senior director of market knowledge and analysis for NTEA, the affiliation for the work truck business.
Shifting into 2023, there’s consensus that in some unspecified time in the future GDP will go flat to barely detrimental versus 2022, although the timing is in query — some say the primary two quarters, whereas others are pushing the recession additional out.
Nonetheless, development is anticipated within the different quarters, in order that for 2023 total, GDP will probably be on par or barely above 2022 numbers.
Labor Market Will Stay Tight
Latin-Kasper made the purpose that the U.S. was already heading right into a recession in This autumn 2019 earlier than the pandemic hit. He referenced how unemployment insurance coverage claims knowledge fluctuated in tandem in each This autumn 2019 and This autumn 2022.
“(This) tells us that from a labor market perspective, we’re again to what we had been feeling within the fourth quarter of 2019,” he stated. “Pre-pandemic, we had been already experiencing the issues which might be related to a good labor market.”
Unemployment claims stand at about 3.7%, as of the webinar date. That’s at, or truly under the total employment fee, he stated. Claims are anticipated to rise, however not by a lot.
The unemployment fee has an inverse impact on inflation: When unemployment goes up, inflation goes down and vice versa.
The speed of inflation peaked at simply over 9% close to the tip of Q2 2022 and has been falling since. (The inflation fee fell for the sixth straight month in December to six.5% on an annual foundation.)
That is excellent news, however not but ok to maneuver the needle on rates of interest. The Federal Reserve received’t again off potential rate of interest will increase till inflation decreases to the Fed’s goal fee of two% to three%. This doubtless received’t occur till no less than midway by means of 2023 or into the third quarter, Latin-Kasper stated.
In monetary phrases, and never adjusted for inflation, the U.S. work truck business is anticipated so as to add one other $10 billion to the market in 2023. Nevertheless, solely about 4% of that will probably be unit development, with the remainder as a result of inflation.
Wanting on the industrial truck and gear business market valuation when it comes to {dollars}, Latin-Kasper confirmed that the market elevated from $146 billion in shipments in 2021 to about $158.6 billion in 2022 and is anticipated to extend to virtually $170 billion for 2023. This development is predominantly based mostly on increased car costs pushed by inflation, nonetheless.
On a unit foundation, 2022 is anticipated to finish the yr flat in comparison with 2021. Whereas 2023 will add one other $10 billion to the market, solely about 4% of that will probably be unit development, with the remainder as a result of inflation.
Truck Gross sales Trending Up, Vans Lagging
Month-to-month OEM gross sales and cargo knowledge present constructive current tendencies, although it varies by class teams.
Class 2 to Class 5 skilled yo-yo swings earlier than the pandemic, after which the pandemic produced even better troughs and peaks. Shipments in 2 to five have been trending constructive since Q1 2022. Wanting on the annual share change baseline, Latin-Kasper expects 2 to five gross sales and shipments to cross into constructive territory in Q2 2023.
Gross sales knowledge for Class 6 to Class 8 exhibits the same slide pre-pandemic, however a extra dramatic drop in 2020 and a extra rapid restoration. When provide chain disruptions kicked in, Courses 6 to eight by no means dipped under the baseline. Latin-Kasper expects 2022 to finish primarily flat relative to 2021 with continued development on this phase by means of 2023, adopted by a truly fizzling out of gross sales and shipments.
The industrial van phase was extra acutely affected by the dearth of availability of semiconductors and components, because the state of affairs compelled OEMs to park tens of 1000’s of vans. As components grew to become obtainable, shipments got here out in chunks.
Van gross sales and shipments have been trending up for the reason that starting of 2022, however the important thing development is that demand continues to be nicely forward of provide. Subsequently, the van phase isn’t anticipated to succeed in the pre-pandemic gross sales baseline of 30,000 models per 30 days for a number of years.
Concerning gross sales and shipments total, “The excellent news is that we’re coming off the underside,” Latin-Kasper stated. “Gross sales and shipments are headed again up in the proper path.”
Commodities Costs a Combined Bag
Latin-Kasper demonstrated worth actions of assorted commodities, together with diesel, metal, and housing.
Diesel costs spiked dramatically in 2022 and have solely not too long ago tapered barely. The value will increase for freight haven’t saved up with diesel, which have squeezed carriers’ revenue margins.
This squeeze usually would make carriers suppose twice about shopping for new tractors, however demand is up to now forward of provide — and can stay so by means of 2023 — that this dynamic isn’t as impactful as it will be in any other case.
Metal costs — a great indicator of how shopper costs are prone to transfer — have been on a downward development, although with an upward blip because of the Russian-Ukrainian struggle. Costs are anticipated to dip to 2018-2019 averages by mid-2023.
Housing begins have already fallen steeply and can trough in 2023 as rising rates of interest dampen first-time homebuyer’s capacity to get into the market. Restoration will occur towards the tip of the yr.
Nevertheless, the multifamily unit market is holding up pretty nicely, as these buildings are wanted for the underserved rental market, Latin-Kasper stated.
NTEA is predicting a slight enhance in chassis gross sales for the 2023 calendar yr, with the industrial van, low cab ahead, and traditional segments experiencing probably the most development over 2022. Nevertheless, the van phase isn’t anticipated to return to pre-pandemic gross sales numbers for a number of years.
Minor Development in Chassis Gross sales for 2023
NTEA’s OEM month-to-month chassis gross sales outlook is at present anticipating 2022 to be flat total in comparison with 2021. Taking a look at gross sales by chassis phase, the large development winners in 2022 had been strip and cutaway chassis (11.5% and 14.2% vs. 2021), together with Class 8 tractors (11.1%). Business vans (-9.6%) had been significantly negatively affected.
The forecast for 2023 requires gross sales to develop by roughly 4% total. Development is anticipated to gradual to 2.5% and 4.5% within the strip and cutaway segments, whereas the traditional and cabover segments (6% and 4%) will choose up the tempo.
Provide chain enhancements may have an outsized constructive impact on the industrial van phase in 2023, with 7.5% development anticipated. (Noting once more that van gross sales will take for much longer to normalize.) The quickest rising weight class segments for 2023 will probably be Courses 4 and 5, adopted by Courses 2 after which 8.
By way of an extended view of recent industrial truck registrations, anticipate gradual development by means of 2026.
Excessive Demand Outweighs the Negatives
Latin-Kasper introduced how consensus outlooks on main indicators have modified from six months in the past. Up to date forecasts from varied sources such because the Nationwide Affiliation for Enterprise Economics (NABE) have trended detrimental since then.
As an example, NABE’s outlook in June 2022 predicted GDP development of two.1% in 2023. The up to date forecast predicts 0.3% development.
Nevertheless, the sky isn’t falling, because the market is rife with mitigating components: Inflation is previous the height and on a downward slope, although we anticipate to be in a rising rate of interest atmosphere by means of no less than the third quarter of this yr.
Whereas the expansion charges of shopper and capital expenditures are prone to gradual, they received’t go detrimental.
Unemployment stays uncharacteristically low, which is a hedge towards a full-blown recession. Nevertheless, labor market imbalances stay a long-term downside as fewer individuals enter the workforce and Child Boomers retire.
As China is a significant OEM provider, plant closures as a result of Covid might have a detrimental impact, however it’s a low likelihood proper now. Political uncertainty with the Russia-Ukraine struggle continues to be a query mark.
Latin-Kasper concluded by reasserting that the approaching recession will probably be shallow and short-lived. The expansion quarters in 2023 will outweigh the detrimental quarters, which can produce a barely constructive comparability total to 2022.
“(That is) hopefully the ultimate a part of the rebalancing act that we have been engaged in for the reason that pandemic hit again in March 2020,” he stated.
Most significantly, fleet demand continues to be nicely forward of provide. Chassis availability is a detrimental, although recovering. “Provide chains are enhancing, however extra slowly than any of us would love,” Latin-Kasper stated.
