Merry Christmas and Happy New Year! If all you wanted for Christmas was the end of the freight recession, then you may (or may not) be getting it. Jan J. J. Groen writes in his most recent Macro Market Notes publication,
“Wage growth in composition-adjusted average hourly earnings remains elevated at paces inconsistent with both the 2% inflation target and near-term inflation expectations… I expect another 25bps rate cut at the December FOMC meeting. However, with wage growth momentum remaining stubbornly elevated as well as a pick-up in underlying inflation momentum and household spending growth the Fed’s appetite for rate cuts in 2025 is diminishing and likely will give way to a prolonged pause in the easing cycle.”
The freight market seems to be sitting at the edge of its seat, waiting for a demand-side catalyst as supply has largely self-corrected—or at least, as much as it can be measured.
For months, I’ve been speaking with economists and freight market experts, searching for clarity on what could ignite the next wave of growth in freight volumes and rates. The common thread? Lower interest rates. The idea is that easing rates would stimulate new investments in struggling sectors like industrial manufacturing, residential construction, and home sales. It’s a narrative we’re hearing across C-suites during quarterly earnings calls: declining interest rates as the promised spark for business expansion.
The big question, though, is whether there’s been—or will be—enough movement in rates to drive real demand stimulus in 2024. And if it happens, which industries will benefit first, and how soon will the effects be felt?
If I were to skip straight to my own take, I’d say growth might be backloaded into the latter half of 2025. Even then, the recovery may take longer to gain momentum than previously expected. This year’s peak season, marked by reports of declining LTL tonnage and a lack of significant disruption in FTL rates, could set the tone for 2025 as well.
If the market maintains supply equilibrium, with minimal carrier exits over the next six months, combined with a still “uncertain” macroeconomic landscape, it’s hard to see 2025’s peak season being drastically different from what we’re experiencing now. But the 2025 peak could also be the build into what most economists think will be a strong year of growth in 2026.
Inflation. We thought we had put it in the rearview. Apparently not far enough. Inflation has been stubborn, which is now changing the landscape for interest rate cuts. And, the labor market is showing resilience, further supporting a pause on rate cuts.
Railroad Weekly - A Substack Publication wrote that,
“Railroad stocks tumbled last week, despite an otherwise pretty good week for the broader stock market. The job market too, showed further evidence of strength. Holiday spending is robust. No new major developments in the tariff discussion. There were even a few green shoots from the sluggish manufacturing sector. But good news might be bad news. Railroad execs have increasingly emphasized their eagerness to see lower interest rates, which would likely help stimulate many of their critical markets—autos, housing, steel, lumber, etc. But signs of ongoing U.S. economic strength make it less likely that the Fed will grant the railroads their wish. At a New York Times event last week, Fed chair Jay Powell said, “Growth is definitely stronger than we thought, and inflation is coming a little higher.” Much of Wall Street, to be clear, does expect a quarter-point cut”
Matthew Klein, one of my favorite economists, interviewed Austan Goolsbee, the president of the Federal Reserve Bank of Chicago. I loved the candidness here, and frankly, this is what is currently driving monetary policy:
Austan Goolsbee: On the wider public hating inflation, you might have seen Jon Steinsson has written about this. I do think that in our basic models, if you want to think of it that way, the fact that people hate inflation as much as they seem to have demonstrated they hate inflation should make everybody a little more cautious of things that risk generating inflation. You’d want to be a little more circumspect about it, and that would affect monetary policy decisions…For our monetary policy decision making, we should take into account that people really look like they hate inflation. Though, back up and remember the post 2008 period people hate high unemployment, too. Maybe the emphasis is you better do a good job because if you start getting off the path on either side, people are going to be upset at you. But to the extent that we just rediscovered around the world that people hate inflation even more than what we thought, we should put that into our loss function.”
Inflation has been a global flashpoint over the last five years, sparking widespread discontent and driving significant political change. A report I came across this month noted that nearly every election held globally in recent years resulted in a shift in party or power, with inflation frequently cited as the catalyst. It’s clear: inflation isn't just an economic issue—it's deeply personal. People feel its impact daily, and they really don’t like it.
The Federal Reserve understands this public sentiment all too well. Allowing inflation to spiral out of control again would be politically and economically untenable. Why take the risk? Their dual mandate is straightforward: maintain price stability and foster a healthy labor market. With the latter seemingly in good shape, their focus remains firmly on reining in inflation.
Edward Jones recently released a set of charts that effectively illustrate the Federal Reserve’s current stance. Wage growth, supported by a strong labor market, has consistently outpaced inflation. This dynamic has bolstered domestic consumption, keeping the economy resilient. Looking ahead, there’s little indication this trend will shift in 2025.
The latest unemployment rate landed at 4.2%, a modest 0.1% increase from the previous month—still within healthy bounds. Additionally, job growth surpassed expectations, alleviating concerns raised in last month’s newsletter, where hurricane-related disruptions had clouded the employment data. With fresh numbers now in hand, the trajectory is clear: steady and stable.
Edward Jones closed their recent update with this statement:
“After another solid year in financial markets and the economy, investors should be prepared for increased uncertainty ahead. Whether driven by government policy or concerns over Fed policy, markets will likely face some headwinds in the coming year.”
David Kelly , Chief Global Strategist at J.P. Morgan Asset Management, brought up an interesting point recently that I also think lends to the FED’s decision to pause on interest rate cuts. Trump’s proposed tariffs could prove to be inflationary, he estimates by Q4 of 2025, and then drift down in 2026. Since I have also written about the proposed impacts of tariffs and other tax policies I also found his thoughts on the topic to be insightful:
“On tariffs, the President-elect has vowed to impose a 10% tariff on all imported goods and a 60% tariff on Chinese goods. However, roughly 38% of goods are imported from countries with whom the United States has a free-trade agreement, most notably Canada and Mexico, which bar this kind of unilateral tariff increase. If we exclude these countries, the average tariff rate on imported goods would rise from roughly 3.0% today to 11.8%, or an increase of 8.8%. However, we assume that because of negotiations with some trade partners, business pressures to exempt some commodities, and foreign suppliers and importers eating some of the cost, the average price of imported goods would only rise by half as much, or 4.4%, starting in the second quarter of 2025. With U.S. goods imports equal to 17% of consumer spending, this could, as a very rough estimate, add 0.7% to CPI inflation next year.”
He went on to detail the impacts later in 2025 into 2026 of the full tax policies:
Economic growth, would be largely unaffected next year, with real GDP rising by 2.2% year-over-year by the fourth quarter of 2025. However, powerful fiscal stimulus from tax cuts kicking in at the start of 2026 could boost year-over-year real GDP growth to 2.8% by the end of the year. Job growth, would also be relatively unaffected in 2025 but would pick up in 2026 in response to fiscal stimulus. Lower labor force growth due to less immigration would cut the unemployment rate to 3.9% by the end of 2025 and 3.6% by the end of 2026. Inflation, as measured by the personal consumption deflator, could rise to 2.7% year-over-year by the fourth quarter of 2025 in a one-time feed-through effect from tariffs and then drift down to 2.1% year-over-year by the end of 2026.
Phil Rosen, Co-founder & Editor-in-Chief of Opening Bell Daily, also weighed in on inflation recently, citing the 5 month high in CPI that was released for November:
He wrote,
The economy looks resilient, but the labor market is indeed getting weaker. Inflation continues to move in the wrong direction, but the Fed’s about to lower interest rates. Financial markets are acting like there’s no risks, and almost everyone on Wall Street expects that exuberance to carry into 2025. Even veteran economist David Rosenberg — a long-standing equities bear — said he’s now reevaluating his view of the market. The classic way of analyzing financial markets, he told clients Friday, may no longer apply to the new era of AI and Big Tech dominance.
Phil Also cited statements made by Fed Chair Jerome Powell recently.
“Growth is definitely stronger than we thought,” he told Andrew Ross Sorkin on stage at the DealBook Summit on Wednesday. “And inflation is coming in a little higher. The good news is that we can afford to be a little more cautious as we try to find neutral.”
Central bankers are set to announce their next policy decision on December 18. However, they face a much different economic outlook than they did during the first rate cut of the cycle two months ago. “The economy is strong, and it’s stronger than we thought it was going to be in September,” Powell said, adding that the downside risks in the labor market have moderated. As of Wednesday evening, markets see a 77.5% chance that it is a quarter-point rate cut.
Let’s consider the possibility of one or two additional 0.25% rate cuts. Would that be sufficient to ignite momentum in the industries most critical for driving freight volumes? Jason Miller recently shared insights on several key sectors within domestic manufacturing—a vital area that accounts for over 60% of domestic freight shipments. Based on historical trends, he expressed optimism that we could see an uptick in volumes across these sectors in the coming months.
We received some goods news with the November ISM data of improving momentum regarding new orders for U.S. manufacturing firms. This said, the reading of 50.4 is still well below what we would expect to trigger a change in the truckload market cycle (for that, we need multiple months of readings > 55 and ideally > 60).
Zeroing in on specific parts of manufacturing, two of my favorite series to anticipate movements in trucking demand are production by Machine Shops; Turned Product; and Screw, Nut, and Bolt (NAICS = 3327) as well as production by Coating, Engraving, Heat Treating, and Allied Activities (NAICS = 3328). Directionally, these series closely correspond to trucking freight recessions as well as expansionary periods. Both sets of production data showed some improvement in October, but have fallen sharply all year (which may help explain why the public LTL carriers are reporting less tonnage this year than last year). My guess is these series have found a bottom, the question now is how quickly we could see output increase (historically we have seen rapid rebounds in these sectors that occur in the manner of a few months), as these sectors touch so many durable goods.
As we look ahead to 2025, the path for rate cuts appears increasingly cautious. A slowing economy, uncertainty around the neutral Fed funds rate, and potential shifts in economic policy under a new Federal administration are all contributing factors. While the Fed maintains a bias toward lowering rates, it has signaled a measured approach, with longer intervals between adjustments likely. Strong economic growth, a resilient labor market, and persistent inflation variability suggest that December could bring a rate cut—but it may be the last one we see for some time. All eyes are on the ISM’s PMI the next several months as we look to see impactful improvements in domestic manufacturing to help bring the freight markets back to life.
To help shore up some of these thoughts and predictions, I will be hosting a 2025 Market Outlook Panel discussion LIVE on the Meet Me For Coffee Podcast in just a few weeks. Joining me will be Ken Adamo , Jason Miller , Paul Poziumschi , and Chris Pickett .
Here is the link to register to attend, you may message me your questions at any time or comment them on the event post to have them answered. If you do not make it, January’s newsletter will also be available as a recap of the event.
We’ve seen good signs of a return to seasonality in the freight market this peak season, a positive indicator things are moving in a healthier, more balanced, direction. Cass reported:
The shipments component of the Cass Freight Index rose 0.5% m/m in November, after two consecutive declines. In SA terms, the index jumped 2.8% m/m from October. On a y/y basis, shipments declined by 0.7% in November, the narrowest decline in 21 months. Ongoing economic growth and slowing private fleet capacity additions are helping to narrow the y/y declines, but the normal seasonal pattern would have the index down about 3% y/y in December. After rising 13% in 2021 and 0.6% in 2022, the index declined 5.5% in 2023 and is on track for a 4% decline in 2024.
The Cass Inferred Freight Rates summary was:
The rates embedded in the two components of the Cass Freight Index rose 0.4% m/m in November, and 0.4% in SA terms too. On a y/y basis, Cass Inferred Freight Rates fell 3.1% y/y in November, after a 3.6% y/y decline in October. Most of the pressure is now due to lower fuel prices. Underlying rates have started to inch higher more broadly. Based on the normal seasonal pattern, this index will still fall 3%-4% y/y in November. The normal seasonal pattern from here would leave inferred rates down 7%-8% in 2024, with a small upward turn in Q1’25.
DAT Freight and Analytics provided updated rate charts:
Dry van spot rates have ticked up over the last month in response to peak season, while contract rates remain neutral. The gap between spot and contract is still considerable.
YOY% change for dry van rates almost flipped positive for contract rates in recent months but has not yet surpassed that threshold that spot rates did.
Similar to dry van trends, spot rates have gained some momentum while contract rates stabilized. JOC reported surging demand for reefer capacity on the west coast for Asian seafood imports recently affecting spot rates and capacity, as well as Yuma season pulling in reefer capacity. The spot rate uptick is likely to continue through December in response to this seasonality.
Contract rates lost a little footing on their way to flipping positive, while spot rates are still on an up and down climb.
Special Edition Episode: How do Brokers Operate with Ben Fauver and Joe Nasternak
How do brokers operate? Most operate differently to fit their unique needs and the needs of their carriers and clients. I'm excited to bring you this two part series around how brokerages operate! We get pretty in the weeds discussing operational work flows, and different technologies and tools at play and how they are enhancing service operations. I hope if you are a brokerage leader this series will add value to your day!In this second part of our two part series I am going to be speaking with Joe Nasternak, the Director of Operations at Muse Freight, and Ben Fauver, the President at Logistics Fox | Freight Solutions. The primary topics we cover in this episode are: Updating Clients, Tracking/Visibility, Gathering Paperwork and closing out loads, Carrier Bill Auditing and Invoicing
Episode 44: Brett Suma - Growing a brokerage in an unprecedented freight market, and technologies role in the future of brokerage
On this episode I am joined by the Founder and CEO of Loadsmith. If you look back at this podcast's history, I don't have on CEOs of freight brokerages on the show often. Our show has always been focused on freight markets, economics, and sustainable business growth models and innovation and technology. I met Brett at a conference and we got to talking and I realized Brett had a lot more to share than just a "how to" for brokerage. Probably not coincidentally if you go back in the show episodes, the last Founder/CEO of a freight company we spoke with was Shannon Breen of Freightvana. Brett and I are going to dive in on all things freight markets, innovation, assets, growth and acquisitions. Join us for the live show, we love to answer questions! Hope to meet you for coffee!
Meet Me For Coffee with Samantha Jones seeks to correlate macro-economics to freight markets (just like this Newsletter does) and offers a chance to hear various industry and non-industry experts explain their thoughts on economics and freight markets.
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Merry Christmas!