The trucking industry rarely moves in isolation; it accelerates and slows with the broader economy. During his closing presentation at the 70th Annual Conference of the Food Shippers of America, Bob Costello, Chief Economist for the American Trucking Associations (ATA), delivered his highly-anticipated economic outlook that connected the dots between supply, demand, and the economic forces shaping freight and transportation markets.
From shifting tariff policies to evolving demand signals — what Costello once described as “green shoots” of optimism a year ago — he explored how today’s cooling indicators are influencing trucking capacity, freight volumes, and the road ahead for the industry.
Costello noted that several economic supports remain in place. On the fiscal side, government policies (including tax benefits) are providing a boost to the economy.
“There are supports there, there’s no doubt,” he said, pointing to recent tax policies that have left some businesses pleasantly surprised during tax season. Monetary policy is also playing a role, with the Federal Reserve cutting interest rates and expected to continue doing so. Costello suggests those decisions could be influenced by leadership changes at the Fed, noting that the administration’s choice for the next chair appears supportive of lower interest rates.
However, tariffs represent a major challenge for the freight market. Reflecting on his closing presentation at the 69th Annual Food Shippers Conference last year, Costello reminded the audience that he had begun seeing what he called “green shoots” in freight demand — early signs of improvement supported by strong indicators such as goods imports and manufacturing activity.
“You saw a lot of green,” he said of the economic dashboard he and his team track. But the latest data tells a different story. “Those green shoots — a bunch of tariffs is thrown right on them,” he explained, noting that while some positive indicators remain, they are far weaker than they were a year ago.
Costello also addressed the broader economic picture, noting that real gross domestic product (GDP) continues to grow slightly above the long-term U.S. average of about 2%. While the fourth quarter showed softer growth at 1.4%, earlier quarters were stronger, and he expects the economy to remain modestly above the 2% mark in the near term. Still, he cautioned the audience against using GDP as a primary gauge for freight demand. “I tell people to ignore this data,” Costello said bluntly, explaining that GDP includes both goods and services. And because the U.S. economy is now heavily service-based, roughly two-thirds of that output doesn’t translate directly into freight moving on trucks.
“You’re not putting services in your trailers,” he reminded attendees. “You’re putting goods in your trailers.”
Costello commented on the growing impact of tariffs on the U.S. economy and freight markets. He pointed out that the United States is currently operating at the highest effective tariff levels since the 1930s, a dramatic shift in trade policy that has significant implications for supply chains and freight demand. While tariffs increased during the Biden administration, he emphasized that today’s levels are substantially higher, creating a new economic backdrop that businesses must navigate.
Costello also discussed the evolving legal and policy framework surrounding tariffs. After the administration lost a challenge at the Supreme Court of the United States regarding certain tariff authorities, policymakers began exploring alternative mechanisms. One option under consideration is Section 122 of the Trade Act of 1974, which allows the president to impose temporary tariffs of up to 15% across multiple countries for a period of 150 days. While those tariffs are temporary by design, Costello noted that other trade actions—such as Section 301 or Section 232 tariffs — could follow and effectively replace them, extending their long-term impact on the economy.
Beyond trade policy goals, Costello suggested tariffs may also serve a fiscal purpose. Revenue generated from tariffs could help offset the cost of recent tax policy changes, often referred to as the ‘Big Beautiful Bill.’
“That money has to come from somewhere,” he explained, noting that tariffs can provide a source of government revenue while broader tax benefits remain in place.
Ultimately, Costello described tariffs in practical terms that resonate with businesses across the supply chain. In his view, tariffs function much like a national sales tax on imports — initially paid by importers but eventually passed along through the supply chain. As those costs ripple through manufacturers, distributors, and retailers, they can influence pricing, purchasing decisions, and ultimately freight volumes moving through the trucking industry.
Costello highlighted how inflation and interest rates continue to shape the environment for freight and supply chains. He noted that inflation, while still present, has moderated compared to the surge seen in recent years. The Consumer Price Index (CPI) rose 2.4% year-over-year, only slightly above the Federal Reserve’s 2% target.
“From an economist’s perspective, that’s not that far above the target,” Costello explained. However, he emphasized that many consumers tend to feel inflation is still severe because they are reacting not to the rate of change in prices, but to the overall level of prices — which has climbed nearly 28% since 2020. Even as inflation slows, prices themselves rarely decline.
“The level of prices doesn’t come down,” he noted. “It just goes up at a slower pace.”
Another signal to watch is the Producer Price Index (PPI), which measures the prices producers receive for goods. Costello pointed out that PPI surged in January 2026, suggesting that the cost pressures created by tariffs and other factors are beginning to build upstream in the supply chain. He believes 2026 will likely be the year those costs begin filtering through to consumers, as businesses gradually pass along higher import and production costs. In the meantime, supply chains have helped keep inflation somewhat contained by drawing down inventories. Many companies imported goods ahead of tariff changes and have been working through that stock, allowing them to delay passing higher costs on to customers.
Costello also addressed interest rates and their influence on supply chain activity. He expects the Federal Reserve to cut interest rates two more times, potentially bringing the federal funds rate to roughly 3%. However, he cautioned that lower short-term rates will not necessarily solve the affordability challenges facing consumers and businesses. When households are asked why it’s a bad time to buy items such as vehicles or major appliances, Costello said the answer is consistent: prices are simply too high.
“Cutting short-term interest rates doesn’t solve that problem,” he explained.
Housing provides another example of how interest rates affect supply chains in more complex ways. Mortgage rates are largely determined by long-term factors such as inflation expectations and government debt, rather than short-term policy decisions by the Federal Reserve. As a result, even if short-term rates fall, borrowing costs for homes may remain elevated. For supply chains, these dynamics influence everything from consumer purchasing behavior to freight volumes, reinforcing how closely trucking and logistics are tied to broader economic forces.
In examining the drivers of truck freight, Costello emphasized the importance of closely watching manufacturing activity, consumer spending, and construction trends. Manufacturing, in particular, plays a critical role in freight demand because it drives the movement of both raw materials and finished goods across supply chains. One indicator Costello tracks closely is the Purchasing Managers Index (PMI) from the Institute for Supply Management, which signals whether the manufacturing sector is expanding or contracting. A year ago, the index showed promising “green shoots” of growth, but more recent readings have slipped below the expansion threshold as tariffs begin raising production costs for manufacturers.
Costello explained that tariffs affect more than just finished consumer products. While many people think of imported goods such as vehicles, electronics, or appliances, nearly half of U.S. imports consist of inputs and semi-finished goods used by American manufacturers. When tariffs are applied to those materials, the result is higher production costs for U.S. factories, which can dampen both domestic output and export competitiveness. Despite these pressures, Costello reminded attendees that the United States remains a major manufacturing powerhouse. In fact, the U.S. is the second-largest manufacturing economy in the world, trailing only China, with the two nations together accounting for roughly 45% of global production. Still, the goal of expanding factory employment has proven elusive, as manufacturing employment has declined by approximately 83,000 workers over the past year.
Costello also reviewed detailed manufacturing data compiled by the Federal Reserve, which highlights the sectors driving production trends. The food and beverage industry represents the single largest manufacturing sector in the United States, followed closely by chemicals. Together, those two categories account for nearly one-quarter of total U.S. manufacturing output. At the same time, sectors such as aerospace and computers and electronic equipment have shown particularly strong growth, helping to lift overall production numbers.
Overall U.S. manufacturing production increased 1.1% last year, but Costello noted that much of that growth was concentrated in just a few industries. Aerospace production surged more than 9%, while computers and electronic equipment rose more than 7%, and chemicals also posted solid gains. However, when those sectors are excluded, the broader manufacturing picture looks less robust—overall production actually declined by about 0.5%. For freight markets, this uneven performance underscores how trucking demand often depends on the strength of specific industries rather than the manufacturing sector as a whole.
Costello explained that labor market trends are a critical indicator for freight demand. One of the first metrics he watches is payroll growth. Prior to the pandemic, payrolls were increasing by roughly 183,000 jobs per month on average, but in 2025 payrolls increased by only about 181,000 for the entire year, signaling a dramatic slowdown in hiring. By the second half of the year, job growth had slowed to only a few thousand new jobs per month.
“The labor market has slowed—significantly,” Costello said, noting that weaker job growth can eventually translate into softer consumer spending and reduced freight volumes.
Despite that slowdown, the unemployment rate remains relatively low at 4.3%, though Costello cautioned that the data may not fully reflect the realities of today’s labor market. The rise of gig economy opportunities—such as ride-share or delivery work—means individuals who lose traditional employment can often find temporary work quickly. While that technically counts as employment, it may not reflect the type of stable job many workers are seeking. As a result, the unemployment rate alone may mask underlying labor market weakness, as some workers are technically employed but underemployed.
Costello also highlighted trends in consumer spending by examining real retail sales, which adjust for inflation and better reflect actual purchasing volume. By that measure, consumer spending has been relatively lackluster, particularly over the past year. Traditional big box retailers and general merchandise stores have experienced declines in real sales, reflecting cautious consumer behavior and higher price levels. At the same time, online retail sales continue to perform well, capturing a larger share of consumer spending even as overall growth moderates.
For the freight industry, these trends present a mixed picture. Slower payroll growth and soft retail demand suggest potential headwinds for trucking volumes, especially in sectors tied to large retail distribution networks. However, continued strength in e-commerce helps support freight movement through parcel networks and fulfillment centers, illustrating how evolving consumer habits continue to reshape the logistics landscape.
The trucking market has undergone a fundamental shift in recent years, said Costello. While economic demand has been uneven, he emphasized that today’s freight environment is largely supply-driven rather than demand-driven, a dynamic that helps explain why the market recovery has been slow and uneven for fleets and shippers alike.
“Demand-based recoveries are easy,” he explained. “This is a supply-based recovery, and those take longer.”
From a demand perspective, data collected from motor carriers shows that contract freight volumes have declined significantly, reflecting the broader slowdown across freight markets. Spot market rates have improved slightly in recent months, but those year-over-year gains are partly the result of comparisons against extremely weak rates from the previous year. Meanwhile, the less-than-truckload (LTL) sector is beginning to show early signs of improvement, with shipments slowly turning around, although tonnage remains elevated relative to shipment levels—an imbalance that can pressure efficiency for carriers.
Regional freight trends have also varied across the country. According to freight data analyzed with banking partners, the Northeast and West Coast experienced freight growth in 2025, while the Midwest, Southeast, and Southwest regions saw declines in freight volumes. Trade activity has also shifted due to tariffs, which have affected inbound truck rates from both Canada and Mexico. In fact, truck volumes from Mexico declined for the first time since 2003 in a non-recession year—an indication of how policy shifts can ripple through cross-border freight flows.
Trade policy remains another area to watch. The upcoming review of the United States–Mexico–Canada Agreement (USMCA) has generated political debate, with the Trump administration criticizing the agreement. However, Costello believes the review will likely result in modest adjustments rather than a major overhaul. Mexican officials, he noted, remain optimistic about the process, while Canada’s position may prove more complicated.
Beyond demand trends, the biggest changes are occurring on the supply side of the trucking market. Revenue pressures have been significant, with average revenue per mile for truckload carriers—excluding fuel surcharges—declining sharply, while spot market rates have fallen even more. When combined with weaker freight volumes, the result has been an extremely difficult operating environment for fleets.
Cost pressures have made the situation even more challenging. Industry cost analysis shows that operating costs have risen dramatically, outpacing freight rates by a wide margin. Since 2019, trucking costs have increased 26% more than rates, creating what Costello described as an unsustainable environment. In short, fleets have faced the difficult combination of lower volumes, lower rates, and higher costs, forcing many carriers to exit the market.
Capacity has indeed been shrinking across several key indicators. While the total number of registered carriers can be difficult to measure accurately due to outdated or fraudulent records, the overall trend line clearly shows a decline in the number of active fleets. The same pattern appears in driver data from the U.S. Department of Labor, which shows fewer employee drivers in the long-distance truckload sector than both recent and pre-pandemic levels. Revised government data even indicated 15,000 fewer employees than previously reported, further highlighting the tightening labor supply.
Interestingly, even as the number of drivers declines, driver pay continues to rise. Average hourly and weekly earnings for long-distance freight drivers have increased, largely because fleets struggle to find qualified applicants. Many prospective drivers are disqualified due to accident histories, insurance restrictions, or failed drug tests. At the same time, increased enforcement of English-language requirements and other regulatory standards has contributed to additional driver attrition.
Equipment levels also reflect the tightening supply environment. Employee-owned tractors are down from both recent and pre-pandemic highs, while independent contractor equipment levels remain below earlier levels as well. Publicly traded truckload carriers have also reduced equipment fleets, signaling broader industry contraction. Compounding the issue, U.S. Class 8 tractor sales have remained below replacement levels for several years, meaning aging equipment is not being replaced at a sustainable pace.
Some sales may increase slightly in the near term due to regulatory and policy changes, including the upcoming EPA 2027 Heavy-Duty Emissions Rule, which is expected to raise equipment costs and prompt some fleets to purchase trucks ahead of the rule’s implementation. Tariffs on trucks imported from Mexico are also adding to equipment costs, further pressuring fleet investment decisions.
Looking ahead, several factors may continue tightening supply. Private fleets that expanded during the pandemic are beginning to unwind, which may return some freight to for-hire carriers. However, many trucking companies remain financially strained with limited cash reserves and rising debt levels. Additional regulatory enforcement—including stricter oversight of electronic logging device manipulation and illegal domestic hauling practices—may also remove capacity from the market.
Taken together, these trends illustrate why the trucking industry’s recovery has been gradual. Rather than a surge in freight demand driving the next cycle, Costello believes the market will continue adjusting through reduced capacity and tightening supply, gradually bringing freight markets back into balance. For motor carriers that have endured several difficult years, that shift could finally begin improving conditions across the industry.
The trucking industry’s recovery will not follow the typical pattern seen in past cycles. Demand-driven rebounds tend to happen quickly as freight volumes surge and capacity tightens almost overnight. This time, however, the market is being reshaped by supply. As capacity gradually exits the industry and fleets work through higher costs, the recovery is likely to be slower and more complex.
Recent policy changes have also accelerated the shift, pushing the market further toward constrained capacity. Regulatory enforcement, labor challenges, and structural changes across the industry are all contributing to a tightening supply environment.
As a result, continued reductions in capacity are expected in the near term. Even without a dramatic surge in freight demand, the shrinking supply of trucks, drivers, and equipment is already reshaping market dynamics.
Ultimately, the truck market has fundamentally changed. The forces driving it today are different than those of past cycles, and those changes will continue to influence the balance between shippers and carriers in the years ahead.
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