The challenges facing supply chain and logistics decision-makers today—from geopolitical shifts to volatile labor conditions—demand informed analysis. We recently spoke with economist Aaron Terrazas, who has spent over a decade and a half analyzing markets for major firms, including Convoy, Glassdoor, Zillow, and the U.S. Treasury Department, to get his take on what these trends mean for the freight ecosystem.

Terrazas, who currently works independently and fractionally, emphasizes that the primary goal for industry leaders right now should be understanding the complex forces influencing demand and supply, rather than relying on outdated cyclical patterns.

The Nuanced Labor Market Reality

The labor market remains a primary focus, particularly following the delayed release of government data. While the September jobs data showed a stronger-than-expected headline increase in total payroll growth (119,000 positive, triple digits), the underlying revisions paint a more complicated picture. Both July and August numbers were revised downward, indicating two months of contracting employment over the summer.

For the logistics sector specifically, there are notable soft spots. Terrazas highlighted a shift in hiring patterns:

"There was kind of I think, a notable soft spot in hiring in the transportation sector. Particularly kind of a big negative number on warehousing and storage employment. Smaller negative number on package delivery partial services and also headline trucking jobs." (Aaron Terrazas)

Normally, this time of year sees companies adding workers for holiday stocking and preparation. The soft spot suggests several possibilities, including the acceleration of inventory pulls ahead of potential tariffs or a conservative approach by retailers who anticipate a "softish holiday shopping season".

The broader labor market dynamics also involve shifts in participation. We are seeing groups intentionally choosing not to participate, particularly young adults (who may return to school or stay home during slower times) and the 55+ category, who surged into part-time work during peak inflation years. This intentional non-participation is an important factor when interpreting the overall unemployment rate.

Consumer Spending: The Hedonism Conundrum

The big question mark remains consumer spending, particularly leading into the crucial holiday retail season. While recent retail spending data showed softness and is consistent with the hypothesis that consumer finances are strained, dollar spend metrics from credit card companies suggest continued growth.

The American consumer continues to spend despite record-low confidence data. Terrazas shared a memorable observation from a chief economist at UBS:

“Never, never short the hedonism of the American consumer. Americans kind of spend in good times and bad.” (Aaron Terrazas, quoting a chief economist of UBS)

Furthermore, data from the Federal Reserve Bank of New York shows that while total credit card balances have increased, the number of total accounts rose even faster, causing the average balance per card to decrease slightly. This suggests that "Americans are opening up more cards" and balancing debt across different sources—a strategy often employed when finances are tight.

Tariffs and the Threat of "Annoyingly Higher" Inflation

Regarding tariffs, the conversation has moved away from binary predictions of massive inflation or no effect, settling instead into a "muddier" reality. Companies may initially delay passing tariffs onto consumers, hoping they are temporary or fearing customer attrition.

However, upward price pressure is starting to emerge on inflation-sensitive goods subject to tariffs. Terrazas explained that tariffs are not happening in a vacuum; while tariff-sensitive categories are inflationary, larger components of headline inflation like housing and energy are currently "modestly deflationary".

The real risk is not a return to 1970s-era inflation, but something more insidious:

"The real risk for the economy moving forward is that this is not 1970. Inflation's not going to shoot up. But what if inflation's a little bit higher? Not so high that it's like disastrous, but like a little bit like annoyingly higher, like you know, 2 and a half 3%. That is not something that shifts policy... but it erodes kind of gradually, slowly purchasing power." (Aaron Terrazas)

The Importance of Construction and Housing

Construction activities, particularly the building of commercial, industrial, or residential facilities, provide a huge boost to GDP and freight demand. The build-out of new AI data centers, often encouraged by targeted government efforts, creates an enormous near-term "demand shock" for labor and resources in communities.

However, the residential housing sector remains critical for overall freight volume recovery. The sector is struggling due to high interest rates, which dampen buyer demand and limit supply, as current homeowners are reluctant to sell.

Adding to the complexity, new home prices are, for the first time in 50 or 60 years, starting to fall below existing home prices. This shift, while seemingly beneficial for builders, still faces headwinds from high long-term interest rates. As one industry leader stated:

"We really need to see some health return to residential housing to see freight volumes improve." (Samantha Jones)

Another driver of construction and freight demand is natural disasters. While catastrophic on a personal level, communities always rebuild, leading to a temporary surge in residential and commercial reconstruction, as well as the replacement of destroyed goods like cars. This rebuilding cycle also tends to integrate new resilience and higher-quality construction.

Forecasting in a World Without Fixed Cycles

The traditional three-year freight market cycle is over, Terrazas contends. The current extended low period has completely disrupted the theory of regularity.

"There is no fixed reason why it should always be three years. Every recession is unique." (Aaron Terrazas)

Instead of expecting fixed timing, the industry must focus on fundamental demand and supply drivers. The core risks to watch today include sustained consumer demand and the ongoing "natural experiment" occurring in trucking labor supply due to immigration policy changes.

Terrazas concluded with a parting word of wisdom for decision-makers working on long-term planning:

"Anyone who tries to like plan for the future has to take a wildly humble approach to where things are going. . . Being able to move quickly, adapt in real time, that's what's on my mind than pretending to have a perfect crystal ball of how the next year is going to unfold." (Aaron Terrazas)

Logistics remains a resilient and flexible sector, and those companies that prioritize adaptability and leverage technology for operational improvements are best positioned to find growth amidst the current economic uncertainties.