Truckin’ Along with the Economy

The trucking industry has been called the canary in the coalmine for the economy — for good reason. Trucks haul goods for just about every sector of the economy, from raw materials for manufacturers to produce grown by farmers to consumer goods that sit on retailers’ shelves. Any change in economic activity immediately leads to an increased or reduced demand for shipping. For the past several quarters, trucking demand has been weak, but our sense is that 2025 should be better than 2024.

Why? A popular gauge of the economy is the ISM Purchasing Managers’ Index (PMI), which surveys supply executives in the manufacturing sector to measure activity in their industry. When the Index is above 50, that suggests growing demand among manufacturers. The PMI has been below 50 for the better part of the past two years. 

However, it is forecast to enter the expansionary zone next year thanks in part to a combination of factors, including Federal Reserve interest rate cuts and the potential for tax cuts and less regulation under the incoming Trump administration. There’s also basic mean reversion. For 23 of the past 24 months, the Purchasing Managers’ Index has suggested a contracting manufacturing sector, but all downcycles have eventually come to an end.

If manufacturing is set to rebound, it could bode well for trucking stocks because historically, the year-over-year performance of trucking companies has largely followed the general path of the year-over-year changes in the ISM Index (see below).

Source: FactSet Research Systems Inc. Monthly data 12/1/2004 to 12/1/2024. The data in this chart represents the year over year percentage change of trucking companies in the ISM Purchasing Managers’ Index (PMI). ISM Manufacturing PMI (Purchasing Managers Index) is an index based on surveys of more than 400 manufacturing firms by the Institute for Supply Management (ISM). The PMI index is an indicator of the economic health of the manufacturing sector based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. A reading over 50 represents that the industry is expanding, under 50 represents a contraction, while a reading at 50 represents no change. All indices are unmanaged. It is not possible to invest in an index. Past performance does not guarantee future results.

Of course, nothing is guaranteed, and trucking demand might not immediately improve. That’s why it’s important to build in an added margin of safety by focusing on trucking stocks that fit our 10 Principles of Value Investing™ and that are also embracing self-help strategies to improve their operational and financial performance to benefit once the economy does pick up.