Economy turning the corner, but  at a crawl

Economy turning the corner, but at a crawl

Improvements in several key indicators point to an economy that’s turning the corner and starting to recover, but even the experts admit it’ll still be a while before things return to anything even close to a “normal” level of economic activity

Improvements in several key indicators point to an economy that’s turning the corner and starting to recover, but even the experts admit it’ll still be a while before things return to anything even close to a “normal” level of economic activity.

For example FTR Associates’ Trucking Conditions Index (TCI) increased slightly in August to negative 20.18; an improvement from March’s reading of negative 28.80 yet still nowhere near a neutral reading of zero. “We use the TCI as a way to take the trucking industry’s temperature, if you will,” Eric Starks, FTR’s president, told FleetOwner. “Back in January, the reading was pretty darn cold – the industry wasn’t dead but it barely had a pulse. By August, the industry is certainly warmer and now has a pulse, but it’s still far from well.”

Starks added that FTR’s data indicates trucking is now at the bottom of the steepest decline in freight since the 1980-1982 economic downturn, with freight down 15% from its previous peak. But freight transport will continue to be a buyer’s market for the near term, as depressed freight levels and substantial excess capacity will continue to be the rule -- putting continued pressure on carrier margins.

“The carriers we’ve talked to feel like we’re at the bottom and are slowly starting to dig out,” Starks said. “But based on what we’re seeing, we don’t expect the TCI to return to near zero, indicating equilibrium in the market, until at least the middle of 2010.”

He noted that a “near zero” TCI would indicate freight growth of around 2% to 3%, low cost of capital, and truck capacity in balance with freight demand. As a result, equilibrium for many carriers may not be reached until 2011 unless there is a more rapid recovery than currently expected. Also, both rail and motor carrier equipment sales are expected to lag any improvement in freight, recovering very slowly, with truck sales not reaching peak levels achieved back in 2006 for a decade or more, FTR indicated.

Other data points also indicate an economy on the rebound, albeit one moving at a snail’s pace. Scott Michael, vp-government affairs for the American Moving & Storage Assn. (AMSA), said overall shipment volumes for the moving industry were only off 10% in June from the same month in 2008. That’s an improvement from the 17% to 20% decline recorded over the first five months of 2009, but a trend line with a long way to go yet.

“The data seems to indicate we’re bottoming out, that we’ve turned a corner,” Michael told FleetOwner. “But shipment volumes are still not great and may take a long time to climb back.”

Michael noted that the shipment recovery period following the 2001-2002 recession for the moving industry was agonizingly slow, with volumes never fully returning to their 1999-2000 peak before the recession of 2008-2009 hit.

The weakness of the current economic situation is what worries experts the most. Chris Kuehl, chief economist for the National Association of Credit Management (NACM), said the “anemic” increase in the group’s Credit Managers Index (CMI) this August of only 0.1 point to an overall reading of 48.1 is “a little sobering,” given the sense that the economy had started to come out of the recession based on July’s report.

“This suggests that the proposed recovery is a little weaker than some of the indicators reflect, especially in terms of availability of money,” he said. “[While] these readings do not necessarily mean that the other signs of economic recovery are not accurate, the credit system has not healed and it may be some time before there is a sense that the biggest issues are behind the economy. There are some shoes left to drop, most notably the commercial property sector.”

Other data that has been used to assert that the recession has started to bottom out is accurate and encouraging. Housing starts are returning back to growth and it is encouraging to see durable goods orders back to normal, but the money situation remains a solid concern for businesses as they seek to expand into other sectors to capture some newly available market share, Kuehl explained.

“It is mildly encouraging to note that the index has not fallen, but an anemic 0.1 gain was much less than had been anticipated,” he said.

TAGS: News
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