With U.S. economic growth at a virtual standstill and European nations facing a variety of fiscal crises, experts are beginning to calculate scenarios looking at how such conditions impact future freight volumes and operating conditions for carriers.
Eric Starks, president of FTR Associates, told Fleet Owner that his firm plans to unveil at its annual Transportation Conference next week how trucking could be affected if such a “growth recession” occurs during the next four to six quarters – meaning U.S. economic growth hovers between zero and 1%, with freight demand essentially flat lined.
“The probability is pretty high right now that we’ll face a ‘growth recession’ type of economy,” he explained. “However, a huge collapse back into recession is still not likely, largely because all the sectors that ‘fall’ during a recession have essentially already fallen.”
The Dept. of Commerce’s Bureau of Economic Analysis (BEA) recently revised gross domestic product (GDP) growth downward for the second quarter this year from 1.3 to 1%. That follows a similar revision by the BEA for the first quarter, which saw initial estimates of 1.9% GDP growth fall to 0.4%.
Last week, the Dept. of Labor noted that the national unemployment rate remained unchanged at 9.1%, as the 17,000 jobs added by the private sector in August were offset by the loss of 17,000 government jobs.
“Job growth remained weak in August, for a fourth consecutive month, and has now stalled,” noted Bart van Ark, chief economist for the Conference Board, in a statement. “The U.S. economy is expanding at a very slow pace and is showing no forward momentum — in overall activity or in jobs.”
He added that there also seems to be little to no help on the way from monetary or fiscal policy at the federal, state, or local level. “It all adds up to little change in a slow labor market over the next few months,” Ark said.
The impact on future freight volumes is already being felt, especially in terms of retail sales projections for the holiday season.
A new survey of consumer goods manufacturers and importers by Capital Business Credit LLC (CBC) shows that the dual trends of weak inventory sales and rising prices paint a dark picture for the upcoming holiday season.
The banking firm noted that 64% of manufacturers and importers reported that retail orders are the same, or less, as compared to 2010, with 30% of respondents noting that the increased costs to manufacture and ship goods will be passed along to consumers. Further, 53% said that due to the increase in raw materials and logistics costs, retailers are asking for longer payment terms during the holidays.
“Inflation is coming and the era when retailers and manufacturers absorb price increases to protect consumers is over,” noted Andrew Tananbaum, CBC’s executive chairman. “Our manufacturing clients are telling us that prices for clothing, bedding and other soft goods will rise this holiday season.”
Still, FTR’s Starks stressed that in general the gloomier economic picture won’t be as detrimental to the trucking industry as many might fear.
“Carriers by and large are well positioned to survive as we move back into a more ‘normalized’ capacity situation,” he explained. “Fleets really haven’t expanded capacity this year – they’ve largely been replacing older equipment – and flattening freight demand will reduce the pressure exerted by the driver shortage. As a result, the industry will largely be in a much better position to weather a ‘growth recession’ style of economic climate.”