Freight Market Trends for the Second Half of 2024

With the first half of 2024 nearly complete, underlying macroeconomic indicators are providing evidence that freight volumes could begin to rebound this year. Although consumers and policymakers are still waiting for inflation to return to the Fed’s 2% target, real spending on goods appears to have returned to pre-COVID growth levels. Additionally, continued real wage gains may support improved goods spending into 2025. While drastic growth in freight volumes this year seems unlikely, shipments in the Breakthrough ecosystem could return to longer-term growth levels by the beginning of 2025.

Recent Trends in Real Goods Spending

During the last economic expansion prior to the pandemic, real monthly spending on goods averaged 3.5% growth year-over-year. During the last 6 months, real goods spending grew an average of 2.7% when compared to year-ago levels with March 2024’s spending growth coming in right in line with the longer-term average growth. Additionally, those increases in spending over the last 6 months are being observed across both durable and nondurable goods. Real spending figures are important indicators for freight market activity because they eliminate the influence of inflation and isolate changes in the quantity of goods being purchased. This, in turn, provides insights into future changes in freight demand.

Impact of Real Wage Gains on Consumer Spending and Freight Volumes

Goods spending has been supported by nearly a year of real wage gains for the average consumer. Real wage gains are experienced when wages increase at a faster pace than prices, typically measured by the consumer price index (CPI). Growth in average hourly earnings fell roughly 0.2 percentage points in April, however, similar declines in headline inflation meant consumers still experienced a 0.5% real wage gain compared to April 2023. One of the keys to healthier economic conditions, and a subsequent rebound in freight volumes, will be the ability of policymakers to bring inflation down while simultaneously maintaining increases in purchasing power for consumers.

Progress on Inflation Remains Stagnant, Interest Rate Cuts Uncertain

The latest inflation report provides the first evidence in several months that inflation has continued towards the Federal Reserve’s goal. Headline inflation, as measured by the CPI fell from 3.5% in March to 3.4% in April. Similarly, CPI core inflation, which removes food and energy, fell from 3.8% to 3.6% over the same period. Policymakers’ preferred inflation gauge, personal consumption expenditures (PCE) core inflation, fell slightly but remained near 2.8%.

Although recent inflation data has been positive, progress has been relatively stagnant over the last 12 months. The next few inflation readings will be closely monitored by both consumers and policymakers as the potential for interest rate cuts later this year will be largely dependent on those readings.  Policy interest rates are still restricting economic activity, and it seems unlikely that will change in 2024, even if one or multiple rate cuts occur in the second half of the year. The CME Group’s “Fed Watch Tool” currently places a 50% probability of at least one rate cut by the September Federal Open Market Committee meeting. Regardless of if a rate cut occurs, it is encouraging to see real goods spending returning to long-term growth levels despite the headwinds presented from higher interest rates.

Freight Demand Indicator Shows Signs of Recovery and Predicts Growth in 2024

In the Breakthrough ecosystem, freight volumes, as measured by our Freight Demand Indicator, experienced their first month of year-over-year gains since May 2022 in April. However, due to the variable timing of the Easter holiday, comparing April 2024 to April 2023 isn’t quite an apples-to-apples comparison. Nonetheless, shipment volumes have been declining at a slower rate since the beginning of 2024, and the Breakthrough Advisor team does expect year-over-year growth in volumes during the second half of this year. Real wage gains and normalizing goods spending growth continue to have a significant influence on shipment volumes and these macroeconomic indicators will be closely monitored as we shape our market guidance into 2025.

Freight Market Expectations for 2024 and Beyond

The resilience in real goods spending and real wage gains amid fluctuating inflation rates offers an optimistic outlook for freight volumes through the latter half of 2024 and beyond. While challenges persist due to potential interest rate shifts and economic volatility, underlying indicators suggest a gradual return to pre-pandemic growth levels in the freight market. Ongoing monitoring of these macroeconomic factors will be crucial for accurate forecasting and strategic decision-making.

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