Bob’s Journal

The biggest threat to the economy and markets right now could be a sleeper factor.

For some time, I’ve said the biggest threat is that the Federal Reserve might tighten too much and trigger a recession. Because of the extraordinary monetary policy engaged in since 2008, the central bank doesn’t have a lot of tools left to reverse the next downturn in growth.

Yet, there’s another threat to economic growth that is more imminent and a surprise to many. There’s a shortage of truck drivers, especially long haul truck drivers.

The United States has fairly robust rail and airplane freight systems. But about 75% of goods make it around the country in trucks on the road system.

Though there are three million truck drivers in the United States, the American Trucking Association (ATA) says there’s a shortage of about 50,000 drivers. There are about 500,000 drivers who make long haul trips, but the ATA indicates that’s where most of the shortage exists.

The shortage is leading trucking companies to offer higher wages and benefits. That’s being reflected in shipping costs, which have increased about 7.7% over 12 months. A lot of the spike in the Producer Price Index that I’ve been reporting in recent months is attributable to higher shipping costs. A portion of that increase is higher fuel costs, but most of it is a result of higher wages for truck drivers. This is also starting to show up in the Consumer Price Index (CPI).

Companies are starting to blame higher shipping costs and delays in receiving supplies for declines in earnings growth, including PepsiCo (PEP), Halliburton (HAL), Hasbro (HAS) and Tyson Foods (TSN). The Federal Reserve’s Beige Book for May said that some trucking companies are turning down business because of driver shortages.

This isn’t likely to be a short-term problem. More than half of truckers are 45 or older, and trucking companies report having trouble hiring younger people to work as drivers. Perhaps driverless vehicles and other technology will help solve the problem at some point. But in the near term, a shortage of truck drivers is slowing economic growth and increasing the cost of goods.

The Data

Consumer Sentiment, as measured by the University of Michigan, continues to slide from its March high. It is down to 97.1 from 98.2 last month. This level still is considered strong, but almost 40% of respondents said they were concerned about the trade conflicts.

Manufacturing remains strong in the New York area, according to the Empire State Manufacturing Survey from the New York Federal Reserve Bank. It came in at 22.6, down from 25.0, but in line with expectations. New orders indicate demand remains strong.

The Philadelphia Fed Business Outlook Survey soared again to 25.7 from 19.9. But costs are rising, probably due to tariffs, so the prices paid component of the index was near its historic high. The six-month outlook is at a two-year low, partly because businesses report that they aren’t able to pass through to buyers all the price increases.

Industrial Production increased sharply by 0.6% compared to last month’s 0.5% decrease. Manufacturing increased by 0.8% compared to last month’s 1.1% decline. Last month’s negative numbers were attributed to supply problems at a Michigan auto parts supplier. That’s a sign the manufacturing sector of the economy is straining current capacity.

Retail sales are picking up, as presaged by credit card use in recent Consumer Credit reports. Retail sales increased 0.5%, and last month’s sales increase was upgraded to 1.3% from 0.8%. Even after subtracting autos and gas, sales were up 0.3% in the latest month and last month’s number was upgraded to 1.3% from 0.8%.

The Housing Market Index from the NAHB was unchanged at 68. That’s a strong level for new home sales but below the peak reached early in 2018. Rising costs for construction materials are becoming a problem for home builders.

Housing starts and permits were well below expectations. Starts declined 12.3% for the month and are down 4.2% over 12 months. Apartments did worse than single-family homes. Single-family homes were down 0.2% over 12 months and 9.1% for the month. This data is volatile in the short term. For example, over the last six months, housing starts are up 7.8%. More than likely, apartments are overbuilt in much of the country and starts in that sector will decline. Single-family home starts should increase slowly and steadily as they’ve been doing.

There was mixed news from the index of Leading Economic Indicators from The Conference Board. Last month’s 0.2% increase was revised down to 0.0%. But this month’s reading came in higher than expectations at 0.5%.

New unemployment claims declined another 8,000 for a total of 207,000. That’s the lowest since December 1969.

The Markets

The S&P 500 bounced 1.52% higher for the week ended with Wednesday’s close. The Dow Jones Industrial Average rose 2.00%. The Russell 2000 returned 0.52%. The All-Country World Index increased 1.41%. Emerging market equities increased 1.50%.

Long-term treasuries lost 0.76% for the week. Investment-grade bonds rose 0.04%. Treasury Inflation-Protected Securities (TIPS) fell 0.44%. High-yield bonds increased 0.33%.

The dollar rose 0.36%.

Energy-based commodities declined 0.76% for the week. Broader-based commodities fell 0.65%. Gold lost 1.09%.

Bob’s News & Updates

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. The July online seminar answers some of the questions I’m most frequently asked about estate planning inside retirement accounts. You can watch these seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Series, click here.

A recent five-star review of my book on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Because of that and similar reviews, you should buy the book or give it as a gift to a friend. Click the following link for more details on the revised edition of “The New Rules of Retirement”

I’m now a regular contributor to the Forbes.com blog. You can view my contributor page here.

Do your heirs know how to handle an inherited IRA? If not, they’ll join the long list of heirs who made simple mistakes that triggered additional taxes and penalties. To avoid this result, be sure your heirs have a copy of Bob Carlson’s Guide to Inheriting IRAs.