By Conor Sen
Economists debate how close the U.S. is to full employment, but less often discussed is where the most crucial constraints are in the labor market.
If we have a shortage of line cooks, the economy can adapt without even adding any new line cooks: The wages for existing line cooks would rise, and dining out would become more expensive, inducing some consumers to eat at home instead. This reduces the business at restaurants and eases the shortage of line cooks.
If we have a shortage of bank tellers, financial institutions can raise pay and train new tellers, or can encourage consumers to switch to online banking.
But truck drivers are a different matter, because of how crucial freight is to the U.S. economy. And for a variety of reasons, it’s truck drivers that represent the most worrisome constraint on U.S. economic growth at the moment.
The trucking industry is unique because it’s the lifeblood of moving goods around the country, representing 70 percent of the nation’s freight volume by weight. Without enough trucks and drivers on the road, some combination of things is going to happen: Shipments will be delayed, and producers will have to pay higher prices to get goods to market.
Industry leaders have been complaining about a truck driver shortage for a while, but unlike other industries that have been complaining about worker shortages, we have real evidence both in employment numbers and in business activity that the shortage is starting to have an impact on the economy. The construction industry has been complaining about a worker shortage for years, and yet in the trailing 12 months construction employment has grown by over 200,000 workers. Workers may be tough to find, but the industry is figuring it out.
Not so in trucking. The level of employment in the truck transportation industry, the category broken out in the Bureau of Labor Statistics’ employment report, is essentially unchanged since the middle of 2015. This level happens to coincide with the peak attained in the last economic cycle in 2006.
Companies have been highlighting freight constraints in their fourth-quarter earnings calls as being responsible for higher operating costs and lower profit margins. Hershey noted that their adjusted gross margin fell by 180 basis points in part because of higher freight costs. Clorox said gross margins are going to fall because of higher transportation costs. Food service company Sysco noted the same. All three are over $10 billion companies whose shares fell sharply on the news.
There’s no reason to think the labor situation in the trucking industry should get better any time soon. Everyone in business and the technology sectors is talking about a future of self-driving trucks — hardly giving prospective workers the incentive to commit to multiweek classes to attain a commercial driver’s license for an industry that might be going away.
Some labor market economists are concerned that even though the stated unemployment rate is low, the employment-to-population ratio for prime-age workers between the ages of 25 and 54 is still moderately below the peaks of the last two economic cycles, suggesting the labor market is still not at its full potential. But if we can’t find additional truck drivers, this places a constraint on what types of economic growth are still possible. If someone wants to open a new factory and finds the workers to build products, but the cost of freight is too high because of a truck driver shortage, then the U.S. economy has forgone output.
This is surge pricing on a grand scale: The risk is that the economy of “moving stuff” in the U.S. becomes like trying to hail a car from a ride-sharing service after midnight on New Year’s Eve. We end up in a situation with freight demand far outstripping supply. In such a situation, prices adjust until they go high enough to kill sufficient demand. And some of the accompanying higher freight costs get passed on to consumers, raising inflation and making the Fed more aggressive in hiking rates.
The tragedy of the current economic situation is that a cycle dominated by the promise of a tech-driven automated future may end up cut short by an old-economy problem of too few human drivers.
— Conor Sen is a Bloomberg View columnist. He is a portfolio manager for New River Investments in Atlanta.