Looking back

Determining when the current recession began is important so that we can gain a better understanding of the contributing factors. This, in turn, will help us lessen their impact in the future. I would pinpoint April 2000 as the start of the downturn, since the data my firm collects relating to traffic patterns shows flat-to-declining shipments starting at that time. The decline was very evident by

Determining when the current recession began is important so that we can gain a better understanding of the contributing factors. This, in turn, will help us lessen their impact in the future.

I would pinpoint April 2000 as the start of the downturn, since the data my firm collects relating to traffic patterns shows flat-to-declining shipments starting at that time. The decline was very evident by August 2000 and in full swing by October 2000.

Where did we go wrong? Our economic system calls for us to maximize production and provide the best products at the lowest possible cost. We certainly did that throughout the 1990s and into 2000. But then we ran into what I call “automatic de-stabilizers,” which are forces that slow the growth of the economy. (This is not to be confused with automatic stabilizers, which help stop the decline.)

The most significant de-stabilizer this time around was higher fuel prices, which lead to lower profit margins for many industries, including trucking.

An inflated stock market is another de-stabilizing factor. When investors cash in on profits or retrench en masse, the price of stocks begins to decline, along with the market values of the companies. This leads to a decline in creditworthiness, which leads to an increase in the cost of borrowing money for everyone. This really put the brakes on growth last year.

The next contributing factor was high-capacity utilization. This resulted in higher production costs just as labor became scarce and productivity began to slow down. With market prices flat, profits could only go down. The need for more revenue served as an incentive to ramp up production, but prices and profits were destined to remain low.

But it's also important to point out that these factors are not only natural but actually necessary for future economic growth. Without significant pressure to adjust our distribution and production processes, the economy would stagnate and quickly become more vulnerable to off-shore competition. The steel industry is a great example of a production technology that is easily transferred to a lower cost environment.

On a more positive note, I'd like to point out that for the past three months, automatic stabilizers have begun to take hold. Before Sept. 11, economic indicators were mixed. And for trucking in particular there were reasons to have a positive outlook. Stabilization in the manufacturing sector suggested that freight traffic had leveled off and could be expected to improve by year's end.

However, the terrorist attacks clouded and then strongly affected the economic outlook. Costs related to the destruction of the World Trade Center and a portion of the Pentagon had a major negative impact on the economy. And when the public refused to travel, that industry incurred substantial losses. As the domino effect took over, businesses such as hotels, resorts, amusement parks and restaurants also took — and are continuing to take — big hits.

Although I still believe we are not likely to see overall economic growth last for an entire quarter until the second quarter of 2002, there are other possibilities. Many analysts feel that growth will not resume until the fourth quarter.

But there are also reasons to be more optimistic. The increase in defense spending will certainly give our economy a much-needed boost. And we can't count consumers out. If they see fit to increase their spending sooner rather than later, they may be able to jump-start the economy in this year's first quarter.

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