Trucking executives trying to divine the demand for their services in the next year might be tempted to extrapolate from the past few quarters. They do so at their peril. The economy sputtered through the last quarter of 2002 and early 2003, achieving just 1.4% growth in inflation-adjusted GDP in both periods. The crawl turned into a walking pace of 2.4% in the second quarter. Early indications are that the third quarter finally will produce enough expansion to create jobs.
You might conclude that the economy is accelerating smoothly out of last winter's languid pace. But it rarely holds a steady speed or shifts gears smoothly. The only near-constants are changes in speed and direction.
The last time real GDP grew at exactly the same rate for two consecutive quarters was in 1979-80. A look at quarterly changes over the last decade shows that growth typically comes in spurts. In half the cases, the next quarter has had either an increase or decrease in growth of 2.4 percentage points or more.
Fortunately, growth is much more common than decline. Before the recession of 2001, which lasted three quarters, the last quarter of falling real GDP was a dip of -0.1% at the beginning of 1993.
Accelerations tend to be brief, however. Only once did the economy gain speed for three straight quarters. Thus, assuming the third quarter of 2003 is stronger than the second, the growth rate in the fourth quarter is likely to be slower than in the third quarter (but still positive). On the flip side, over the past decade deceleration in growth usually has lasted for just one quarter, and never for more than two in a row.
How do you put that painfully gained insight to use?
One possibility is to place an order now for new equipment. This might sound premature, especially if you have rolling stock parked against the fence. But there are some reasons to act sooner rather than later.
First, a jump in economic activity is likely to bring a burst of orders for equipment of all types, including trucks. It may be prudent to get ahead of the pack, even though GDP growth may cool off for a quarter or two. Try spacing out your delivery schedule for new equipment so you don't receive them all just as the next slowdown hits.
Second, this may be an unusually good time to buy in terms of taxes and financing. The tax bill signed by the President last May lets you lower your taxes by writing off 50% of the cost of new equipment as soon as you place it in service; you can apply regular depreciation schedules to the rest. This “50% bonus depreciation” applies only to equipment placed in service by the end of 2004. So if you delay ordering, a surge of orders from others may put your delivery date beyond the deadline.
As for financing, short-term interest rates have remained very low for now, even as long-term rates have been spiking. For instance, the gap between one-year adjustable-rate mortgages and 30-year fixed-rate mortgages was recently the widest it has been since 1986. But that type of gap seldom persists. In this case, a rise in the short end, such as rates on equipment financing, is much more likely than a drop in long-term rates.
The bottom line: Adam Smith famously described the “invisible hand” guiding the economy. Looking at how the economy grows and slows, it appears there are also a couple of invisible feet at work-one on the accelerator, the other on the brake. That means you can't wait for confirmation of a trend before placing your order. Instead, you have to look around the next curve, which half the time will be a sharp one.