INDIANAPOLIS. Despite describing it as a “tortoise economy,” William Strauss – senior economist for the Federal Reserve Bank of Chicago – believes continued slow and steady growth will benefit the U.S. and trucking in particular next year, especially as threats to the nation’s economic outlook are largely all external.
“We’re in year seven of an economic expansion and this growth period is getting a bit long in the tooth; historically such growth periods last around five years,” he explained here at the annual FTR Transportation Conference
“What usually happens is some sort of ‘shock’ occurs that causes the economy to take a pause. But very few of such potential ‘shocks’ exist in the U.S. right now,” Strauss pointed out. “The probability of something ‘bad’ happening economically within the U.S. is very limited; outside of the U.S. is where the danger lies. That’s where we must keep our eyes open.”
He explained that the long-range gross domestic product (GDP) growth trend for the U.S. economy hovers between 2% and 2.25%. Last year, U.S. GDP hit 2.5% and Strauss expects GDP to reach 2.4% this year before climbing to 2.7% in 2016.
“We’re hovering around trend growth; that’s not super-impressive but it’s not bad either,” he said. “But trend growth tells me it’s not fast enough to remove the slack from the U.S. economy in an aggressive way. That’s why there’s even still slack in transportation.”
Still, Strauss noted that trailer loads are up and that the pace of economic growth should be moderate into 2016.
Eric Starks, FTR’s president, added later that freight tonnage overall is projected to increase 3% in 2016.
Strauss also noted that inflation is expected to remain restrained this year at just 0.7% but should get more legs in 2016, jumping to 2.2%.
“Inflation is very low due to the collapse of energy prices,” Strauss said. “And the reason energy prices collapsed is that supply keeps growing, even in the winter months.”
Global economic worries from Europe to China are pushing up the value of the U.S. dollar – it’s climbed 14.8% over the past year alone – and that’s going to hurt exports as a strong dollar makes exported goods more expensive.
One of the bigger long-term worries facing trucking and the U.S. economy as a whole is the availability of labor, Strauss noted.
“Unemployment is at 5.1%, which is indicative of full utilization. But it does not feel like full utilization,” he said.
That’s because the labor force participation rate is down three percentage points from its 66% pre-recession level – meaning 7.5 million workers have dropped out of the labor market.
“I feel that 2/3rds to 3/4ths of that is just demographics – the baby boom generation retiring,” Strauss indicated. “But other indicators show things are not all right with the labor market. Wages and benefit costs continue to increase at a very slow pace. Clearly something is wrong here; we’re missing something. My take is that we will not see a ‘normal’ labor market until the middle of next year.”