Despite Expected Inbound Recession, Some Factors Mitigate a Sharper Downturn

ACT Research reports carrier profitability is strong, with profits at all-time record levels in 2021, and full-year TL fleet profits are pegged at second-best ever levels in 2022

According to ACT’s latest release of the North American Commercial Vehicle OUTLOOK, ACT shifted forecasts last month to incorporate an inbound recession, and this month’s forecast changes were mostly characterized by smaller adjustments, both higher and lower, as the shape of their downturn forecasts were fine-tuned.

According to Kenny Vieth, ACT’s President and Senior Analyst, “We are raising our 2022 forecast, reflecting better-than-expected production in June, and some easing of supply conditions, although we believe industry production will continue to be capacity constrained. Our now-higher forecast remains incrementally below the OEMs’ aggregate industry build plan.” Opining on Federal Reserve policy, he indicated, “More persistent rate tightening, beyond the 100bps of additional tightening we expect through the balance of 2022, represents a downside risk to our current forecast.” When asked about next year, Vieth said, “The combination of falling freight rates, higher carrier operating costs, rising interest rates, and falling used equipment valuations represent increasing risks to vehicle demand as we move into 2023. However, while we are marking down our forecast, 2023 is still projected to be a very good year, just not as good as we were expecting, as tailwinds are blowing less hard amid rising headwinds.”

Vieth concluded by discussing the potential impact to commercial vehicle markets, “We continue to see at least three factors mitigating a more severe downturn.” Vieth noted, “Carrier profitability is strong, with profits at all-time record levels in 2021, and full-year TL fleet profits are pegged at second-best ever levels in 2022. Vehicle demand remains healthy, if moderating from here, with pent-up demand expected to support demand into 2023. Finally, some prebuy activity is anticipated prior to the implementation of CARB’s Clean Truck mandate, helping to support activity into year-end.”

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