Fearless '04-cast

What will happen to your costs in 2004? Here's one economist's fearless forecast: Wages. This is the biggest cost item for most fleets. Fortunately, wages have been a sleeping giant and are likely to remain so in '04. The economy has awakened but the job market hasn't: Employment in trucking has been stagnant for the past year at 1.33 million, down nearly 80,000 from its peak levels last reached in

What will happen to your costs in 2004? Here's one economist's fearless forecast:

Wages. This is the biggest cost item for most fleets. Fortunately, wages have been a sleeping giant and are likely to remain so in '04. The economy has awakened but the job market hasn't: Employment in trucking has been stagnant for the past year at 1.33 million, down nearly 80,000 from its peak levels last reached in early '01. Hourly wages in August were up just 2.7% from a year before.

Health benefits. The fastest-growing expense in recent years has been health insurance. You'll have to sit through that movie again in '04. Even the government's employee and retiree health plans will jump 10.6% on average next year, while most surveys of large employers suggest increases of 12-15% will be common; small employers may face even bigger hikes. However, the increases will not be uniform. Some companies will impose much higher burdens on employees, especially those seeking family coverage, whereas other employees may see a reduction in premiums.

Pensions. A volatile area. Companies with single-employer defined-benefit plans may have to make large contributions next year as recent poor portfolio returns and low interest rates poison the actuarial witches' brew that determines required contributions. However, Congress could ride to the rescue; a temporary, partial bailout sailed through the usually partisan House on a 397-2 vote in October.

Meal, lodging, and auto mileage allowances. The IRS actually reduced the reimbursement rate for business use of autos in '03 from 36.5 to 36 ¢. For '04, standard day rates for meals and lodging are likely to remain virtually flat, reflecting the near-absence of inflation and the soft market in the hotel business for the past two years. Auto reimbursement will also show little change.

Fuel. A chart of weekly gasoline prices in '02 and '03 looks like an underlined M, with sharp peaks in March and just before Labor Day '03, followed by nearly symmetrical declines, but with every week's price riding above the same week of '02. In contrast, diesel prices had one peak in March but remained in a tight range through the summer and early fall, dropping below the year-ago level in October. As always, diesel prices will remain vulnerable to political, weather, and production disruptions. But at this point, it looks as if retail prices for both fuels will stay in the $1.40-$1.60 range. That would leave the cost of diesel for '04 slightly lower than in '03.

Equipment. The pre-buying that pushed up sales before October '02 and depressed them for months afterwards has finally worked its way out of the system. But those oscillations could repeat on a smaller scale in '04 if Congress does not extend the December '04 expiration date for the tax break known as “50% bonus depreciation” that rewards equipment purchases before that date. Meanwhile, the underlying costs of manufacturing and financing equipment should be almost unchanged.

Interest rates. Long-term interest rates took a hop in June, then retreated part way by summer's end. But a gradual, irregular, upward movement in rates can be expected as the economy revives and federal deficits deepen. Short-term rates should stay in the remarkably low range that has prevailed throughout '03.

Insurance. There should finally be some slowdown in the double- and triple-digit increases in liability insurance of the past few years. Worker's comp will remain a sore spot, driven largely by health care costs.

The bottom line: You get what you pay for — and don't forget what you paid for this forecast!

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