It's six weeks since September 11 and industry analysts are wrestling with how the aftermath of the terrorist attacks will impact trucking's anticipated recovery next year from the current economic slump.
The crucial question is how quickly consumer confidence — the bulwark of the U.S economy — will snap back after being depressed by the uncertainty and fears engendered by a nation gone to war on terrorism, abroad and at home.
Echoing the fact no one has ever been down this road before, economist Jerry Leonard, Martin Labbe Assoc., says any economic forecast issued right now should be regarded as a “work in progress.” Be that as it may, Leonard is willing to predict that the decline in freight traffic will level off in the first quarter of '02 and then start to improve in the second quarter. “Expect to see good, solid growth in the second quarter,” says Leonard, “and for it to increase faster toward the second half.”
If consumer confidence bounces back this fall, according to analyst Chris Brady, Commercial Motor Vehicle Consulting, trucking will see shipment volumes rise gradually through next year.
As autumn unfolds, economic prognosticators will be closely tracking key indicators of that all-important bellwether, consumer spending. Right after the attacks, consumer confidence plunged to its lowest level since early 1996.
Brady points out that retail sales results for September were 2.5% below those of August. “That's a small percentage, but it represents a steep drop,” he states. “Before September 11, the inventory correction needed for shipments to pick up again looked nearly completed. But with the falloff in retail sales, inventories have become excessive again. “As a result,” he continues, “freight levels that were already depressed will now decline further. “We will have to wait for October and November data to see if that pull-back in spending was temporary or not.
“If it was a momentary decline, the inventory correction will be completed by the end of this year, and we'll see a gradual increase in shipment volumes through '02,” Brady figures. “But if consumers don't come back this fall, the inventory correction will continue through the first half of '02 and there will be a further decline in shipment volumes.”
Both Brady and Leonard agree that the economic news for trucking this year would be worse had housing starts not held up as well as they have thus far. “Housing has been one of the things that has helped trucking in spite of the drop in the manufacturing sector,” says Leonard. “However, the most recent report by the National Association of Homebuilders shows that housing starts have begun to fall off.”
Another bright note Leonard offers is that housing starts will not fall off as much they did in the recession of 1991 — due to the low mortgage rates prevailing now. “Back then, in '91,” he notes, “everything was going bad. That's not the case today.”
Uncertain times also tend to hamper purchases of durable goods. However, Leonard says nondurable goods are not as cyclical and won't be affected to the same degree.
Leonard stresses that he expects both business investment and the all-important consumer spending to rise going into the new year. “As consumers come back, we'll see a quick response by manufacturers.”
As for other near-term effects of the September 11 aftermath, Brady says to look for insurance rates to rise but fuel prices to stay down.
“Insurance companies will be taking a huge hit to cover their losses related to September 11,” he reasons, “which will lead to higher insurance rates across the board. In addition, truck fleets may be viewed as being of higher risk than before and wind up getting a bigger whack from insurance carriers.”
As for fuel, Brady says that barring political fallout from the overseas war being waged on terrorism, such as bombing beyond Afghanistan, that could compel OPEC to cut back production, diesel fuel prices should remain low, at least for now.