It’s the time of year when many contractors, producers, and distributors start their capital budget planning for 2021. And correspondingly it’s the time of year when economists start their educated guesses.
Late last month the National Truck Equipment Association (NTEA) hosted a very timely duo of webinars providing its member an overview of the future of their market. NTEA members are outfitters and dealers that provide bodies, attachments, and upgrades to trucks ranging from pickups to concrete mixer chassis. Sometimes it’s important to look for financial tidbits pertinent to contractors and producers from non-traditional sources.
In the North American Macroeconomic Forecast, presented by Robert Fry, an economist with a strong background in industrial settings, offered his insights into U.S. economic expectations including potential challenges and opportunities in 2021. The presenter shared how key factors such as consumer confidence, housing starts, employment levels, commodities prices, and foreign trade will influence North America and the global economy.
The second presentation was more trucking focused. Steve Latin-Kasper, Senior Director of Market Research and Data at NTEA; and Andrej Divis, director of MCHV Forecasting, IHS Markit offered their insights in “Work Truck Industry Overview and End Use Market Forecasts.” Attendees were given an in-depth work truck industry analysis, including discussion of market size and segmentation by cab type and weight class, focusing on the commercial truck market.
I had four important takeaways for contractors and producers to consider in the 2021 budget planning:
- The 2020 recession is officially over! According to Robert Fry, most economists believe that the pandemic recession is technically over, making it the shortest recession on record. But those of us living in the practical world, Fry says, won’t think the economy is normal and “returning to the pre-pandemic levels” until we near 2021, depending on medical breakthroughs.
- This is the time to purchase a class 8 vehicle. While new car sales are seemingly strong with pricing up due to demand and low inventories, 2021 could be the best time in many years to purchase a Class 8 vehicle. All three economists focused on an interesting pre-pandemic economic tidbit– Class 8 truck sales were on the decline before the shutdown. They offered three key reasons. First, the average age of trucks on the road is relatively young, with few older units needing replacement. Second, several large over-the-road fleets made large purchases in 2018 and 2019 creating a future uptick that will be happening soon. And, three, there remains a certain amount of uncertainty in the trucking industry as the strength of traditional supply chains have been upset by changing consumer purchase patterns, government policies, and the pandemic.
- Residential construction is storng. All the economists agreed on the expectation of a relatively strong residential market with respect to both remodeling and new single-family home sales. They offered several reasons. First, there was a surprisingly low inventory at the start of the pandemic. Second, many homeowners have put off selling their homes due to economic uncertainty and just want to nest at home during the pandemic. And lastly, the rapid adoption of home-based work places has allowed more disposable income (savings from commuting, etc) that are encouraging professionals to take advantage of low interest rates and purchase that larger, or more remote, home. The economists are anticipating steady sales in the types of trucks commonly purchased by residential contractors.
- A recovery shift in consumer purchases from goods to services will happen in the middle of 2021. Commercial contractors are very anxious about the upcoming year. These economists provided an important reason why large projects may be delayed until mid-year 2021: Consumers are purchasing goods at a much higher rate than they are purchasing services. And the economists believe this focus on goods will start to slow and switch to services (travel, restaurants, etc) by the mid-year. Building owners will be hesitant to make an investment until they can understand the lasting effects of the social changes the pandemic has brought.
Forewarned is forearmed, so before heading to your dealer to discuss that new fleet purchase, study these economic resources by viewing the presentations and graphs posted at https://www.ntea.com/forecasts. One big truck to consider is the new Western Star 49X.