The economy is currently on solid footing, but the Class 8 market has fallen dramatically this year. With the economy expected to grow slightly better in 2017, can we expect this to translate into a better environment for new equipment orders for the truck OEMs and their suppliers? The answer is likely to be yes, but there are several risks that could change our expectations for 2017.
The EconomyThe economy is currently on solid footing and GDP is expected to grow slightly over 2% in 2017. The real battles for the economy are likely to be for 2018 and beyond, although those battles will be fought in 2017. That's when the new administration and Congress will make decisions on infrastructure stimulus, taxes, trade, and deficits.
How much stimulus is added to a full employment economy?Will tax cuts affect the middle-class, as well as the wealthy?How will all of this be paid for?How will trade issues be handled?These are important questions. Adding stimulus to a full-employment economy and importing inflation via trade tariffs leads to higher interest rates. This raises the probability of a recession down the road. It also could mean stronger growth in late 2017 and into 2018.
Trade is a wild card. The risk to economic growth could be minimal if the new administration targets specific industries. However, in the event of trade conflicts, the impact could be much larger and potentially dangerous to global growth.
Class 8 TrucksMost of the risk for 2017 is centered on two key items: freight growth (which is tied to the economy) and implementation of the electronic logging devices (ELD) mandate.
Rolling back rules and regulations, as some anticipate out of the new administration, would certainly change Class 8 demand. Freight growth has been relatively modest over the last year and we expect that to continue into
