Economic tea leaves demand close read To get full picture, economic news good and bad must be weighed.

Economic tea leaves demand close read

FTR: GDP growth now at 2% will drive 3-4% growth in truck freight

If truck fleet owners are not careful in how they interpret the reams of economic data that the general media delivers, they can run the risk of missing out on opportunities by giving too much weight to bad news over good.  

That was the key point made by analyst Noel Perry, senior consultant with FTR Associates and principal of Transport Fundamentals, speaking during FTR Associates’ most recent State of Freight webinar.  

“This is a slow economic recovery that is distinguished by both bad and good economic news,” said Perry. “And it’s important to look at the good news, as politicians and economists are focusing on the bad. “

Among the good news he related is that FTR’s Industrial Production Index is showing 4% year-over-year (YoY) growth, which Perry said was “very good for trucking.”  He said there is also a “good” recovery under way for durable goods, explaining that much of that performance is “due to the recovery in auto and light-truck sales—which are now in the 14-millionrange.

“There’s more good news,” he continued. “The housing market has bottomed out and is beginning to recover and construction for business [purposes] is also now in positive territory.”

Perry also observed that the recovery is very evident regarding “hard goods,” but that there is less data on “soft goods,” although he noted that fuels are currently a soft market.

On the bad news front, Perry pointed out that thanks to the spreading and deep drought affecting much of the nation’s heartland, the agricultural sector will remain down. In addition, he noted that the chemical sector is also weak. Government spending is also still down with public spending on construction declining.

“Retail sales are doing okay,” Perry advised, “but they are down over the last three months.” He said this is a key issue as the U.S. “can’t have a sustained economic recovery without consumers spending money.” He noted that the retail inventory-to-sales ratio is “relatively low, meaning inventories have been controlled.”

The high unemployment rate is “another big negative,” said Perry. “And at this high level, it won’t get back down to a ‘normal’ level of 5% in this decade. We have seen a prominent shift in this [last] downturn in that many of those who were laid off have been laid off forever.” He added that what has fell the most in the recession was goods-producing employment—“many jobs were lost; the most since the Depression.”

Looking beyond the U.S., Perry observed that the global forecast is also downbeat. “In every part of the world, 2012 [economic performance] is weaker than 2011. This is especially so in the Eurozone, where 8-10% of our exports go. Overall, the global economy is still growing at 2%.

“The last economic negative is our sovereign debt issue,” Perry continued.  “This is a very intractable problem [that holds down growth]. Just the so-called ‘untouchables’—including what is spend on national defense, Social Security and pensions/interest—outstrips [federal] revenues. Neither [major political] party has a concrete approach to solving this issue,” he added. “And left unsolved, it can lead to another recession.”

Right now, though, Perry said he was confident that the economy’s “positives will balance out its negatives enough to enable a slow rate of recovery [that will amount to] 2% GDP growth.”

Still, sluggish GDP growth doesn’t necessarily equate with freight growth, according to Perry, who pointed out what he calls the GDP/freight-growth multiplier effect.

“Truck freight grows more rapidly than GDP,” he explained. “When the economy grows at 2% or more—as it is doing now and will continue to—you will see 3-4% growth in truck freight.”

That’s the good news in a nutshell. However, Perry cautioned that even so, “now is not the time to stop watching the economy closely.”

 

 

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