Trucking is benefiting from a still solid economy. The economy did not slow down as much as the U.S. Dept. of Commerce originally reported in the second quarter, as gross domestic product (GDP) grew at a seasonally adjusted annualized rate of 2.9%, up from the preliminary estimate of 2.5%. This followed a robust first quarter expansion of 5.6%.

GDP growth closely tracked consumer spending trends, which accounts for about 70% of the entire economy, as it grew at a annualized rate of 2.6%. Business investment spending growth, which had since 2Q 2004 been more bullish than GDP growth, declined (1.6%) for the first time in 13 quarters. That contraction did come off of unsustainable growth of 15.6% in the first quarter. Exports expanded 5.1% from robust 1Q 2006 growth of 14%.

Business inventory-building was revised upward from the preliminary estimate to $58.7 billion. Trucking companies are the immediate benefactor from inventory builds as they move goods to replenish stocks within the manufacturing, wholesale and retail segments of the supply chain.

“For trucking obviously [inventory builds] are good because freight is being produced and shipped from shippers to distribution centers or between wholesalers and retailers,” Chris Brady, president of Commercial Motor Vehicle Consulting told FleetOwner. “The concern is if inventories become excessive, then manufacturing output will decrease with respect to retail sales.”

The slowing economy is likely to shift the trend from businesses having too little inventory to just enough, said Brady.

“The concern is that you don’t want to see excessive inventories because then you’d see a fall-off of freight volumes,” Brady said. There are no indicators so far that inventories are trending toward excessive levels, Brady added.

Based on the recent GDP report, in the immediate term, trucking companies remain poised for good times as the third quarter draws to a close.

“The third quarter is pretty solid so far,” Brady said. “The industrial production report implies that we’re still seeing strong producer growth in output and the backlog is continuing to expand. That implies output will expand in the near future as consumers are still increasing spending.”

Brady said trucking companies that haul residential construction-related freight are the most vulnerable to seeing a downturn in 2007. Since January 2006, housing starts steadily declined from 2,195 to 1,747 in July, according to the U.S. Census Bureau.

“One market we’re going to see slower freight volumes or even a downturn in 2007 is freight associated with residential construction activity,” Brady said. “A cooling housing market doesn’t immediately impact freight volumes because you have a large number of homes under construction. But what we’re seeing is that number of homes started is trending downward. That’s why we’ll see a decline in freight volumes related to residential construction in ’07.”

To comment on this article, write to Terrence Nguyen at tnguyen@fleetowner.com