Economic indicators positive for freight

Although the pace of the U.S. economic recovery slackened somewhat over the past few months, several groups say their long-term forecasts for growth “remain intact” and offer positive signs for continued increases in freight volume

Although the pace of the U.S. economic recovery slackened somewhat over the past few months, several groups say their long-term forecasts for growth “remain intact” and offer positive signs for continued increases in freight volume.

While economic growth slowed sharply in the first quarter to 1.8 percent from 3.1 percent in the fourth quarter of 2010, according to Fannie Mae’s May 2011 Economic Outlook, the firm said its long-term forecast remains intact with expected sustainable growth of above 3% during the next couple of years.

“The first-quarter slowdown was due, in large part, to a number of significant temporary factors, including severe winter weather, the tragedy in Japan, political unrest in the Middle East and North Africa, and rising gas prices,” noted Doug Duncan, Fannie Mae’s chief economist, in the report.

“Temporary factors notwithstanding, near-term gains are anticipated for the second quarter as the economy is expected to recoup some of the losses experienced in the first quarter of 2011,” he added.

Fannie Mae said consumer spending growth held up well despite the sharp rise in gasoline prices, with spending expected to track firmly into the second quarter. Importantly, strong job gains in April marked the third consecutive month of solid growth, Duncan noted – a good indication that the labor market is gaining momentum and an upside factor for consumer confidence, which inched up slightly during the quarter

Consumer confidence needs to maintain an upward trajectory in order to have a positive impact on housing, he added, and sustained improvement in housing continues to remain elusive. “But some positive movement is expected as we move through 2011,” Duncan said.

Single-family homebuilding activity remained weak during the quarter, with housing starts and new home sales staying flat at depressed levels, according to Fannie Mae’s research. Existing home sales showed some rebound, although distressed sales continue to account for a large share of sales and the share of distressed sales has risen in recent months.

“The confluence of low interest rates, historically low home prices, and improving employment has not yet reached all the way through to consumer attitudes, which we continue to survey on a regular basis,” Duncan noted. “In spite of the positives surrounding the housing market, we see that consumers are still hesitant to take on a large financial obligation. Nevertheless, we do forecast some improvement in home sales over the course of 2011 compared to 2010.”

Uneven economic activity isn’t shaking the faith of The Conference Board, either, even though its Leading Economic Index (LEI) for the U.S. declined 0.3% in April to 114.0 (2004 = 100), following a 0.7% increase in March, and a 0.9% increase in February.

“The U.S. LEI has been rising since March 2009, with only a brief one-month interruption in June 2010, and now, in April 2011,” noted Ataman Ozyildirim, the group’s economist. “The U.S. Coincident Economic Index (CEI), a monthly measure of current economic conditions, continued to increase, supported by improving employment figures. Overall, the composite indexes still point to strengthening business conditions in the near term, although the path may be uneven.”

“The economy has been growing moderately and delivering some new jobs,” stressed Ken Goldstein, another economist with The Conference Board. “The U.S. LEI was rising strongly – up sharply in four of the five months through March – but slipped in April. Economic growth will likely continue through the summer and fall, but the pace of economic activity may be choppy.”

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