Trucks at Work

Uncertainty still rules the road ahead

While the headwinds remain strong going into 2012, there are indications the economy and the housing market are gaining ground, albeit slowly. All told, though, next year will be another bumpy ride.” –Frank Nothaft, vice president and chief economist, Freddie Mac


While there’s no doubt been a spate of good economic news of late, chronicled adeptly by my esteemed colleague David Cullen last week, the outlook for 2012 still remains cloudy at best due to a variety of factors – meaning that freight carriers will need to stay on their toes as the New Year approaches.

“There is a great deal of uncertainty right now,” noted Matthew Sottong, surveys director for BNA, a wholly-owned subsidiary of Bloomberg L.P.

“Poor economic performance, not only in the U.S but also abroad, gridlock on Capitol Hill and the run-up to a Presidential election where the outcome is very much in doubt … all of those factors lead to timidity on the part of business to expand and hire new people,” he explained. “Until some of those factors are resolved, we are very likely to continue to see flat or slowing job growth in all business sectors.”

Sottong derived this rather gloomy forecast from BNA’s latest quarterly employment survey of 384 companies, which discerned that after an initial pickup in hiring projections from the fourth quarter of 2010 to the first quarter of 2011, employer hiring plans remained largely flat for the bulk of 2011 and are showing some indications of slowing in the first quarter of 2012.

Though Frank Nothaft, vice president and chief economist for Freddie Mac, offered a more positive analysis on recent employment trends – especially in terms of the unemployment rate falling in 2012 – he, too, noted that the jobs outlook for next year remains uneven at best.

“The drop in the unemployment rate from 9% to 8.6% in November was welcome news, although roughly one-half of the decline appears to have been discouraged workers who quit the labor force,” Nothaft noted in Freddie Mac’s December economic brief.

“Broader measures of labor under-utilization, which include discouraged workers and part-timers who want full-time work, also moved lower in November but remain very high, at 15.6%,” he said. “Over the twelve months ending in November, the unemployment rate dropped 1.2 percentage points--more of a drop than would have been inferred from payroll job gains that averaged only 130,000 per month.”

Part of the reason that relatively modest payroll job gains have, nonetheless, pushed the unemployment rate lower has to do with sluggish labor force growth, Nothaft pointed out.


“Discouraged workers are one part of this equation, and they will likely come back into the labor market if economic growth strengthens and firms hire at a more brisk pace,” he explained. “This scenario means stronger job growth in 2012, which appears likely, though it may not put much of a dent in the nation’s unemployment rate.”

In the end, Nothaft (at left) believes 2012 will close out with the unemployment rate below November 2011’s level but still uncomfortably above 8%.

In terms of overall U.S. economic growth, however, he’s more positive. “U.S. economic growth appears to have accelerated in the waning months of 2011, with fourth quarter growth expected to come in around 2.5% to 3%, annualized, by most forecasters,” Nothaft said.

“Evidence to support the pick-up were stronger retail sales, low inventory levels, and a 477,000 three-month gain in private non-farm payroll employment from August through November,” he added. “Given the anemic 1.2% annualized growth over the first three quarters of the year, the final quarter could provide some needed momentum as we head into 2012.”

For 2012, Nothaft believes U.S. economic growth will likely strengthen to about 2.5% – not huge, certainly, but not too bad either considering the times we’ve been through.

Still, there remain many structural problems throughout the world’s major economies, especially when it comes to “sovereign debt” levels and the U.S. is by all means ensnared in this burdensome issue as the federal deficit is at $15 trillion and rising.

Indeed, Min Zhu, deputy managing director of the International Monetary Fund (IMF), bluntly addressed this situation in a speech given earlier this month in Shanghai, China.


“We are gathered here today as policymakers around the globe are switching back into firefighting mode,” Zhu (seen at right) said. “What had begun as a financial sector crisis turned into a sovereign debt crisis and has now morphed into a fully-fledged crisis of confidence. Markets are particularly worried about the continuing adverse feedback loop between sovereign risk and financial sector weaknesses. Big and bold political decisions are needed to reduce sovereign risk. But we also need increased efforts to bolster the financial systems both in advanced and emerging economies.”

Zhu added that major advanced economies seem to have entered a vicious cycle of weak economic activity, financial distress, and high public debt and deficits. Though emerging economies, by contrast, show stronger fundamentals and are underpinning global economic growth so far, they are not immune to the market disruptions caused by sovereign debt loads.

“In fact, vulnerabilities are increasing, and potential spillovers from advanced economies are weakening their economic outlook,” he warned. “The risk is that banks will be more likely to cut lending or sell assets. Because of this deleveraging trend, there is a serious risk of intensifying adverse feedback loops between the financial sector, the real economy, and fiscal positions within and beyond the Euro area.”

Zhu pointed out that U.S. has its own ugly set of problems to deal with, as well.

“The revised estimate of U.S. third-quarter GDP [gross domestic product] growth of 2% was below expectations … [and] even this level may be difficult to sustain in the fourth quarter, given weak income growth, high unemployment, declining house prices, and the fact that higher consumption was financed primarily through reduced savings,” he said. “Continuing political disagreement over fiscal policy is weighing on market sentiment in the U.S. as well.”

So while there are certainly many positive economic trends taking shape, a spate of negative ones remain in place – thus unfortunately leaving the freight industry with an uneven road to start hauling upon as we approach the New Year.

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