Forecasting remains an imperfect science
Since many of the issues we faced last year are still pertinent today, I want to look at what I said about them in this column during '98 and make whatever adjustments are necessary.
Last February I said the chance of deflation was unlikely, and I feel this is still the case today. I say this despite the fact that deflation has hit Japan and Hong Kong. I still maintain that a broad and sustained decline in prices is unlikely, although we'll continue to see swings in specific sectors.
Last March I talked about the President's use of trust funds to balance the budget. This issue has taken on new meaning in light of his recent State of the Union address, which contained upwards of 70 proposed uses of the budget surplus - with no indication that government should be downsized.
April's article on the economic malaise in Asia seems consistent with today's outlook. While significant progress has been made in correcting economic imbalances, the area is not out of the woods yet. Affected economies should see a reduction in the rate of decline in '99, with the possibility of real growth later in the year. It's also possible that efforts to jump-start their economies could lead to inflation. This could result in another setback, but a milder and shorter one.
May's article, on the other hand, is one of those humbling experiences economists are subjected to more often than they'd like to admit. The economy proved much stronger than I expected in the second half of '98. Consumers continued to spend and the service sector continued to provide jobs.
June's article seems to be relatively on the mark. The shipping community has developed a greater awareness of the benefits of closer cooperation with trucking firms, which means we're moving toward a reduction in both road congestion and transportation costs.
In July I talked about the impact of a rising trade deficit. In fact, the Administration is making an effort to reduce import levels for some commodities. While we continue to enjoy low prices for imported goods, we're becoming increasingly vulnerable to the impact of source substitution (industry buys lower-priced imported goods instead of domestic products), which primarily affects communities that are reliant on single industries.
In August I talked about the impact of inefficiencies at shipping and receiving locations. It appears that in general the increased transportation requirements of a strong economy have caused this situation to worsen. I do see a light at the end of the tunnel, however, as some sectors are beginning to address the problem. Look for improvements in '99.
September's article reminds me of the only question I ever answered correctly about the stock market. When asked if it was going to go up or down, I said "yes." Even with the substantial drop in the market during the third quarter, investors weren't willing to let go of the opportunities in the technology sector. At the time, I suggested publicly traded carriers should be wary of valuation swings and the corresponding effects of capital flexibility. Now maybe they should consider adding ".com" to their names.
October's article dealt with what happens when a country devalues its currency. The situation in Japan taught us that an entire region is immediately vulnerable when there's significant trade among its economies. Now we must turn our attention to Brazil, which is a significant trading partner to other South and Central American nations. Since it's unlikely that the devaluation of the real can be contained, other devaluations will follow. We could see inflation rates of 30%-50%.
November's article suggested that carriers would see a decline in linehaul traffic as industries supporting exports reduced their outputs. Once again, consumers rose to the occasion and more than offset the aggregate decline in traffic due to export softness. Carriers with specialized services - equipment haulers and tankers - saw a reduction in traffic, however, which is likely to continue.
In December I talked about the unpopularity of trucking-related stocks. Now, however, equipment producers look more appealing. P/E ratios of less than 10 are now giving way to an average above 10. And if investors understand the value of your industry, things could improve even more.