In early February, the President signed into law a financial stimulus package that would offer rebates to millions of taxpayers, give tax breaks to businesses and help ease the mortgage squeeze by increasing the size of loans eligible for government-backed insurance.
This action, along with back-to-back cutting of Fed funds rates, is expected to help the sluggish economy in general — but will it help the trucking industry, which has been in a funk for more than a year?
The answer is “yes,” according to most economists, but the extent and speed of these radical cures for a weak economy are unknown. “These actions, in general, are good not just for trucking but all modes of transportation,” says American Trucking Assns. chief economist Bob Costello. “They give the economy a shot in the arm. Will it cause a boom? Probably not, but it will soften any blows.”
Unlike past weakened economies, this one is more difficult to parse because tonnage has been bobbing up and down for two years, says Costello. There are no clear trends upon which to peg forecasts. “It is a most prolonged and unique downturn, and that makes reading the tea leaves very difficult.”
Indeed, economists who study trucking took little comfort in robust December figures showing that tonnage jumped 4.1%, following a modest rise of 0.9% in November. The December figure was the largest month-to-month gain since December 2006 and the highest since January 2006, on a seasonally adjusted basis. However, Costello warns not to get too excited about the seemingly optimistic indicator. “The [supply chain metrics of the] fall season has changed,” he says, “making November and December numbers look better than the weaker October numbers. I won't draw any conclusions yet.”
Bob Dieli, president of RDLB Inc., an economic consulting firm in Lombard, IL, studies the trucking industry and believes the stimulus package, coupled with Fed rate cuts, is positive. “Yes, it's good, but it's going to take a while to work. The Fed just downshifted…there could be a lag of 3 to 12 months before we see results.”
Like others, Dieli notes that there are several unknown variables that determine how effective these recent actions will be. For example, the Fed is making it cheaper to borrow money, but we don't know if people will borrow. Dieli says that although bankers will have more money to lend, we don't know if they will because there's little incentive now for them to do so while the economy remains jittery and their own balance sheets are unstable. “I'm concerned about people actually getting loans. Banks are buying T-bills while they figure things out.” He suggests that we could go another calendar quarter before banks get their act together enough to aggressively lend money.
Dieli also says that the effect of pre-buying in 2007 was enormous, adding to overcapacity and weakening the truck industry. “I was struck by the extent and how long the effect of pre-buying lasted.” He likens it to the panic pre-buying of new computer equipment prior to Y2K (2000), which helped fuel the Internet bubble that burst in 2001.
If fourth-quarter 2007 earnings reports are any indication, trucking is still struggling. Major TL carriers such as Celadon, Knight and USA Truck reported poor profit results. LTL carriers Yellow, ABF and Con-way are all hurting from aggressive pricing pressures, higher fuel costs and a disappointing holiday freight season. Yellow's chairman and CEO William Zollars told analysts that he's not expecting an upturn for his company until 2009.
Whether the U.S. is in a true recession will not be known until after the fact, because the official definition is two quarters of back-to-back drops in GDP. One thing is clear, however. Trucking usually is a leading indicator of the economy in general. “It's not uncommon for trucking to go out before a recession and lead it back,” says Costello. Although it may be little solace, when the economy recovers from its current malaise, truckers will know it first.