Trucks at Work

Optimism vs. Pessimism

The global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere. Financial conditions have deteriorated, growth prospects have dimmed, and downside risks have escalated.” –from the International Monetary Fund’s World Economic Outlook update this month


Optimism among U.S. industrial manufacturers regarding the prospects for the U.S. economy over the next 12 months rose to 30% in the fourth quarter of 2011 – up from only 5% in the third quarter of 2011.” –from PricewaterhouseCoopers’ fourth quarter Manufacturing Barometer survey

For truckers trying to read the economic tea leaves to figure out what direction freight volumes might be headed in, there isn’t much clarity to be found of late.

For example, take the quotes above – one from the latest World Economic Outlook update compiled by the International Monetary Fund (IMF) and the other gleaned from a quarterly survey of manufacturers conducted by global consulting firm PricewaterhouseCoopers (PwC).

They only scratch the surface of the iceberg in terms of uncertainty plaguing the global economy right now, as portents of doom are being issued right alongside a sudden surge in confidence about the business opportunities ahead.

The gloom of course derives from the still precarious sovereign debt situation in Europe; a region of the world the IMF now believes is headed for a recession this year. The international entity slashed its economic growth outlook for the “Euro zone” this month, predicting a drop in economic output of 0.5% for the region in 2012 – a decline of 1.6% from its outlook last year – and only meager growth of 0.8% in 2013, a decline of 0.7% from previous estimates.

The IMF left its prediction of 1.8% growth for U.S. in 2012 unchanged, but reduced its forecast for 2013 to 2.2%; a decline of 0.3%. Things are rosier in Asia, despite a substantial downward revision of ¾ of a percentage point, which is still projected to grow most rapidly at 7.5% on average from 2012 through 2013, the group said.

For the world as a whole, the IMF projects economic growth will only reach 3.3% – down 0.7% from its last estimate – and reach 3.9% in 2013; a decline of 0.6% from previous predictions.

“The outlook for growth is mediocre, and it could be worse,” said Olivier Blanchard, the IMF’s Economic Counsellor, noting that the Euro area would fall into a mild this year affecting other parts of the world including the U.S., emerging markets, and developing countries.

“Given the depth of the 2009 recession, these growth rates are too sluggish to make a major dent in very high unemployment,” he added.

[Sovereign debt levels – an issue that affects the U.S. as well – is one of the main culprits behind of all of this, according to the IMF’s analysis.]

Yet contrast the IMF’s furrowed economic brow with the optimism now burgeoning within the U.S. industrial sector, which not only expects continued domestic and international growth in 2012 – even though forecasts have fallen below 2011 actual growth rates – but in some cases is getting quite bullish about its prospects.

According to PwC’s fourth quarter Manufacturing Barometer survey, while uncertainty still prevails and revenue expectations are moderating, optimism about the worldwide economy shot up significantly in the fourth quarter last year – despite plenty of negative news coverage concerning the Euro zone’s debt troubles.

In addition, U.S. industrial manufacturers continue to forecast increased investment spending in the year ahead, including major outlays in operational spending – the highest level in six years, actually, noted Barry Misthal, PwC’s global industrial manufacturing leader.


In particular, he pointed to a huge turnaround in optimism among the 60 senior executives of large, multinational U.S. industrial manufacturing companies polled by PwC – with 30% expressing optimism regarding the prospects of the U.S. economy over the next 12 months, up from a measly 5% in the third quarter last year.

However, Misthal (at left) did stress that the majority of respondents (57%) remain uncertain, rather than outright pessimistic, about the prospects for the global economy as a whole, while among U.S. industrial companies operating abroad, uncertainty also remains high at 64%, with 36% believing that the world economy is declining and 48% reporting that they saw no change.

“While forecasts remain guarded with growth rates trailing prior year actual performance, optimism about the worldwide economy increased among U.S. industrial manufacturers in the fourth quarter of 2011,” he said. “Despite the improved sentiment, however, the majority of U.S. industrial manufacturers remain cautious regarding the outlook ahead. Expectations for moderate growth in 2012 appear to be balanced by healthy cash levels, improving gross margins and continued strategic investment spending among the major industrial manufacturers.”

That investment spending is critical in terms of gauging confidence in the future. PwC found that over the next 12 months, 67% of its industrial manufacturing panelists plan major new capital investments, up 12 points from the third quarter of 2011 – the highest in the past five quarters, with two-out-of-three U.S. industrial manufacturers planning spending.

Also, 90% of respondents plan to increase operational spending, an increase of 5 points from the third quarter of last year, with those increases aimed at new product or service introductions (57%), information technology (50%) and business acquisitions (40%).


“The increase in planned operational spending, as well as M&A [merger and acquisition] activities reflects an ongoing focus among U.S. industrial manufacturers in investing for growth in the face of an uncertain global outlook,” Misthal noted. “In addition, industrial manufacturing companies have continued to build liquidity, while taking steps to improve margins and provide ample support for investment in growth initiatives with a global focus.”

Now, here’s a big happy sign for truckers: According to PwC’s poll, U.S. industrial manufacturers will continue to focus on improving global supply chain operations, with three quarters (77%) of them believing it is very or extremely important to the growth of their global businesses to improve their companies’ supply chain over the next two to three years.

Another 43% of respondents confirmed it is very/extremely important to improve their companies’ globalized product development operations, while 40% cited their supply base and 39% highlighted their manufacturing footprint as major priorities. In addition, a whopping 75% of respondents confirmed definite plans for major/minor improvement of their globalized distribution systems over the next 12 to 18 months.

So – as usual it seems – we have a mix of good and bad trends happening all at once in the confused economic mish-mash shaping the world’s future. Yet positives still bode well for trucking, so let’s hope that remains on track.

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