Business activity tumbled to its weakest in 26 months

Ugly data was released this week from S&P’s Global Flash PMI indexes. It showed business activity tumbled to its weakest in 26 months, signaling contraction. This is an indicator that a recession is likely.

Sky-high freight rates are falling, pinching truckers’ income. This is a major indicator of what’s going on in the economy overall.

If you bought it in the U.S., that item was put on a truck at some point. Right now, there are hints of a slowdown in demand.

• Meanwhile, supply has been stabilizing as a flood of new truckers entered the industry to cash in on the ultra-lucrative boom that sent paychecks soaring.

• Some say the industry is simply coming into balance after two years of unsustainable activity.
• Others say the sector is rolling over, and a “freight recession” — with harsh consequences for some truckers — is imminent.

The “spot market,” a live indicator of what it costs to book ad hoc capacity on a truck is one place to look (Larger firms tend to use contract rates — they take cues from the spot rates, but with a lag — where prices are negotiated farther in advance.)

From the report:

• Excluding fuel, spot rates have plummeted by a sharp 30%, but remain above pre-pandemic levels, according to Freight Waves.
• “To see prices deteriorate by one-third in three months is pretty dire,” says the site’s CEO Craig Fuller.
• Prices go up when the market is tight, with high demand for goods and limited trucking capacity to move them. But prices fall when the opposite happens: Demand slows with more trucking supply.

Analysts, including Stifel, say steeper rate drops will be explained by a further slowdown on the demand side as consumers back off on spending…because they’re broke.

• Fuel prices remain high. The slump could cause a shakeout in smaller truck operators facing a collapse in revenue.
• “High fuel costs have been running in their face, prices have been falling, and they have a high cost of operation. That’s not a good combination for staying in business,” says Jason Seidl, a freight analyst at Cowen.

“We had a freight recession in 2019 and 2015. Did that mean that people were losing jobs at an alarming rate, companies were going bankrupt left and right? Not necessarily,” says Stifel analyst Bruce Chan.

In earnings calls this week, the country’s biggest trucking firms confirmed that the pandemic-era gravy train has slowed. “There’s little pockets of softness that really weren’t anticipated,” LandStar CEO James Gattoni told analysts.