Alternative asset management firm Apollo Global Management projects a summer recession onslaught by trade war-inflicted stagflation, according to a report published by Torsten Slok, the firm’s chief economist.
That spells trouble for U.S. retailers and logistics providers. Slok’s report projects that in late May or early June, layoffs in the trucking and retail industries are likely to begin, just ahead of a summer recession.
The projections come from a slew of data points about consumer sentiment, logistics activity following U.S. President Donald Trump’s back-and-forth position on tariffs, causing widespread concern over the state of the global economy.
The logistics side of the house
Data from Apollo’s report shows that, ahead of tariffs taking effect, inventories rose rapidly. That’s likely because brands and retailers alike sought to frontload basic items at the lowest-possible entry rate, particularly as uncertainty loomed about the rate of tariffs in key production countries like Vietnam and Cambodia.
Simultaneously, though, sales of heavy trucks declined “significantly” in March, per Apollo’s analysis of Bureau of Economic Analysis data. The Logistics Managers’ Index, which measures industry trends and developments, also declined to 57.1 in March, down 5.6 points from February.
Zac Rogers, analyst for the Logistics Managers’ Index and an associate professor of supply chain management, said at the time that the slowdown can be attributed to the shifting of three core metrics dropping between February and March: inventory costs, warehousing prices and transportation prices.
“This suggests that supply chains revved up in February and early March to bring goods in, but have slowed in more recent weeks as more trade controls have been implemented,” Rogers wrote in the March monthly report. “It will be critical to continue monitoring this situation over the next few months. Dynamics in the transportation market are often a leading indicator for movements in the overall economy. If we see a sustained pullback in freight, it may signal coming issues in the overall economy.”
According to Slok’s data, April has seen declining demand for cargo ships coming from China to the U.S.; he projects that in early-to-mid May, once container ships inbound to U.S. ports from China “come to a stop,” trucking demand will also halt.
While Slok doesn’t directly state the reason for such a slowdown in his report, many companies are holding their breath, hoping for tensions between China and the U.S. to ease—and tariffs on goods imported from China to come down—before shipping additional goods en masse.
Taking the data about high inventory and lowering purchase rates on heavy trucks alongside the projection that trucking demand will slow, it becomes clear that, once the goods already on ships have been delivered via truck to brands and retailers’ warehouses, stores and fulfillment centers, there is likely to be a lower amount of product entering the U.S. from China, wiping out demand for trucking transport.
That lack of demand, Apollo projects, is likely to cause layoffs in trucking. Already, major trucking CEOs have addressed softening demand, with some downgrading earnings guidance and others noting they have moved away from previously viable transactions or cut their annual capital expenditures. Volvo Group North America has already announced up to 1,000 potential cuts attributed directly to declining demand for their trucks.
Retail and the consumer
The issues are far from contained to the logistics sector.
At-large consumer sentiment plummeted 8 percent between March and April, down more than 32 percent since last year. According to the University of Michigan, consumer sentiment has also declined by 32 percent since January, which marks the most rapid three-month decline since the 1990 recession.
With a more pessimistic consumer and hordes of frontloaded goods held in warehouses and distribution centers, retailers may find themselves holding the bag on excess inventory if consumers aren’t incentivized to buy.
And other indicators about the consumer show that they may be buckling down on spending. A record-high percentage of consumers believe business conditions are likely to worsen by this time next year, and nearly 70 percent of U.S. consumers indicated that they expect to see more unemployment in the next 12 months.
Joanne Hsu, surveys of consumers director for the University of Michigan’s index, said consumers’ job expectations, compounded with concerns over inflation and spending power, could see consumer spending retreat in coming months.
“Without reliably strong incomes, spending is unlikely to remain strong amid the numerous warning signs perceived by consumers,” Hsu wrote in April’s report.
One of those warning signs is inflation; in a report about partisan perceptions, Hsu noted that consumers of all political inflations are expressing greater concern over inflation since late January.
If Trump doesn’t have another change of heart on tariffs that sees consumers’ economic outlook brightening, those issues could drive lower retail sales, and thus, lower revenue for retailers. Slok also references “empty shelves,” triggered by supply chain difficulties and rising prices.
Those two factors taken in tandem are likely to require retailers to cut costs, which Slok contends is likely to translate into layoffs in late May or early June, much like the trucking industry.
