Trucks at Work
The long, slow slog

The long, slow slog

Clearly, the renewed slowdown in hiring underscores the uncertainty surrounding the economic outlook. The lack of sustained, robust job growth continues to push out into the future the time for the housing market to heal, which is crucial to a meaningful economic expansion.” –Fannie Mae Chief Economist Doug Duncan.

It ain’t pretty, and it sure ain’t welcome, but as the old saying goes … when the going gets tough, the tough must just get going. And that – in all likelihood – is going to be one of trucking’s mantras over the next few months, if not years, as slowing economic growth continues to breed uncertain portents for the future.


“The economy is struggling to regain the momentum lost since the beginning of 2011 as higher gasoline prices and supply-chain disruptions due to the Japan tragedy during the first half of the year combined to restrain growth,” noted Fannie Mae’s Chief Economist Doug Duncan (at right) in the firm’s July 2011 Economic Outlook.

He said economic growth in the second quarter is estimated to have moved “at the same anemic 1.9% pace seen during the first quarter,” though motor vehicle production is on track for a rebound and we've seen a decline in oil prices, which should encourage gross domestic product (GDP) growth of about 3% in the third quarter this year before slowing modestly in the fourth quarter.

Full-year growth is projected to slow to 2.4% this year, down from 2.8% in 2010, according to Fannie Mae.

Even manufacturing – the shining economic sector since this sluggish “recovery” supposedly began in mid 2009 – is now struggling.

In the second quarter, manufacturing output edged up at a 0.2% annual rate, down from a 7.2% pace in the first, noted Nigel Gault (below at left), an analyst with research firm IHS Global Insight, adding that core manufacturing output, excluding high tech and autos, slowed sharply in both May and June, increasing only 0.1%.


“The slowdown in manufacturing is one reason the economic outlook has dimmed,” Gault said. “Others include the failure of housing to pick up in the first half, May's and June’s miserable payroll numbers, and almost no second-quarter growth in real consumer spending. Based on the latest data, we now project that GDP grew only 1.6% in the second quarter—down from 1.9% growth in the first. And the ongoing game of chicken over the debt limit could make matters worse—a lot worse.”

“The economy's inability to gain traction stems from continued uncertainty,” added Fannie Mae’s Duncan. “The ongoing European and U.S. sovereign debt issues may have a significant downside impact on the banking system and broader financial markets, both here in the U.S. and abroad.”

Furthermore, housing – a central piece of the U.S. economic story – continues to add nothing to economic growth, with home sales expected to rise only slightly over last year's numbers. “And, two consecutive very poor employment reports have compounded issues for an already stressed labor market,” Duncan said.

Frank Nothaft, Freddie Mac’s vp and chief economist (below at right), didn’t add much of a positive nature to the outlook with his firm’s forecast, pointing out that non-farm payroll employment rose a scant 18,000, in June following a downward-revised 25,000 in May, while private sector job growth slowed to a measly gain of 57,000 gain for June – largely offset by the continued downsizing of state and local payrolls.


As a result – and as we all know by now – the U.S. unemployment rate ticked up for the third consecutive month to 9.2%, the highest in six months.

“Following June's labor market report, households are naturally concerned about their financial futures, which is being reflected in the housing market,” Nothaft added. Yet he believes the single-family portion for the housing market will likely improve over the balance of 2011, in keeping with positive (albeit small) U.S. GDP growth forecasts.

“Home sales are expected to be up over 2010's pace, perhaps by 3% to 5%,” he noted. “And after clear weakness in national price metrics through the first quarter, there are glimmers the second quarter will likely show gradual improvement over time.”

Still, the global economy suddenly isn’t looking all that healthy, either – and that’s without bringing Greece’s complicated deficit situation to the table.

Rising inflation and flat investment have kept the world's economic recovery stuck in reverse, at least in the opinion of those survey by the according the latest Global Economic Conditions survey conducted by the Association of Chartered Certified Accountants (ACCA).

Of the 2,186 ACCA members surveyed between mid-May and early June this year, only 26% reported increased confidence, down from 28% three months ago, with 57% saying that economic conditions are either deteriorating or stagnating, up from 51% only three months ago.

“While the rocketing inflation of the first quarter was not repeated in the second three months [of 2011], a greater proportion of those surveyed, 54% - up from 51% in the last quarter - reported an increase in operating costs,” Manos Schizas, ACCA’s senior policy adviser (below at left), pointed out. “This is double the number of respondents who mentioned inflation two years ago.”


The group’s survey also shows that rising costs are not just confined to the fastest-growing economies. While best performing markets Malaysia and Pakistan are leading the inflation league table, rising costs were also cited by 45% of respondents in Western Europe, which has been affected by the continent's debt crisis, still sits at the bottom of the ranking in terms of business confidence and economic optimism.

Businesses are also becoming increasingly unable to respond to the inflationary challenge through cost-cutting, according to ACCA’s data. Around 30% of the survey respondents expect their governments to get spending decisions right in the medium-term, but 16.5% expect dangerous levels of over- or under-spending and this group has been growing every quarter since late 2009.

On top of all of this, access to finance has been tightening globally for the past six months – both growth capital and short-term liquidity. “This, combined with rising costs, now appears to be leading to an increase in the number of respondents who fear that customers (31%) or suppliers (15%) might go out of business, as well as those reporting problems with late payment (31%),” said Schizas.

And if you don’t think that affects transportation and logistics, think again, for the group’s poll found that the drop in activity in OECD [Organization for Economic Cooperation and Development] countries has for the last few months been trickling down the supply chain, first to the Asia-Pacific region and then to Africa.

“There are a number of concerns in the latest report, including that the loss of momentum in Asia and Africa has become particularly pronounced in the last few months,” Schizas added.

“The limits of austerity are also being explored in Western Europe and a renewed tightening of credit and cash flow conditions could be on the cards, even as new orders and employment are beginning to recover,” he noted. “If these new trends – coupled with high inflation and low investment – persist we would expect to see further instability in the near future.”

None of this makes for pleasant reading, that’s for sure. In the end, though, forewarned is forearmed, meaning carriers can at the very least start adjusting to what could be leaner freight flows down the road.