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Business spending on capital equipment is still slow, as businesses wait on the outcome of the presidential election. The Federal Reserve finally cut interest rates on September 18 and is likely to cut rates gradually through the end of 2025, at least. This will reduce borrowing costs and boost business confidence in the economy. But for now, the major uncertainty is what the economic policy of a new U.S. president will be. Many businesses are waiting until after the election before committing to spending plans for 2025.
Labor costs should increase at a slower pace in 2024, but that easing process is happening gradually. Annual wage growth should dip from 3.8% now to about 3.6% by the end of 2024, and 3.3% by the end of 2025, as hiring has slowed and lower inflation reduces cost-of-living pay raises. Wage growth will be highest in sectors with continuing labor shortages, such as healthcare, and in the Southern states and Texas, where rapid in-migration has increased demand for many services.
The cost of shipping by truck will rise over the rest of the year, but very slowly. Truckload spot rates will be 10% higher by the end of 2025, as demand for freight shipping improves, according to Avery Vise of FTRintel. Excess capacity in the truckload market is gradually being squeezed out. Contract rates will follow with a lag, up about 6% at the end of 2025. Less-than-truckload contract rates will rise only 3%, given their sustained rise earlier. These increases will be concentrated in the dry van and refrigerated sectors, while flatbed rates stay weaker.
The decline in trucking rates over the past 18 months is the result of the reversal in surging consumer goods purchases that peaked in 2022. This surge also caused an expansion in the number of trucking firms, many of which were independent truckers. While many of these drivers have since rejoined larger trucking firms, the total number of firms is still roughly 70,000 higher than prepandemic trend growth, representing excess capacity in the long-distance market. Excess capacity in the less-than-truckload (LTL) market was removed with the bankruptcy of Yellow Corp. last year. Employment in the LTL sector remains at a 10-year low.
The cost of ocean shipping from Asia has begun to ease as the peak pre-holiday shipping season comes to an end. China-to-West Coast container rates jumped by $4,000 per box in May and June as retail shippers ordered extra merchandise early, due to the continuing near-closure of the Red Sea and threats of tariffs on Chinese goods coming from both presidential candidates. Rates have come down about halfway from their surge, but remain elevated.
Prices of materials are bouncing around based on forecasts of China’s growth. Commodity prices declined since the beginning of the year as China’s growth slowed. Steel prices dropped between 20% and 30% this year, depending on the type. West Texas Intermediate (WTI) crude oil is still below $70 per barrel. But copper has jumped 12% in the past two weeks because of reports that the Chinese government will introduce new measures to stimulate its resource-intensive economy. Lumber prices have traded in roughly the same range for the past two years., though there may be some upward pressure if housing starts rise consistently. The prices of lithium and cobalt — two raw materials needed for EV batteries — have dropped further because of slumping electric vehicle sales so battery production has outpaced demand.
