BIRMINGHAM.. The economy is bad. We’re on the verge of a double-dip recession. We’ve all heard those refrains. But Noel Perry, senior consultant with FTR Associates and principal of research firm Transport Fundamentals, doesn’t see it that way. Speaking at the 25th Annual McLeod Software Users’ Conference here yesterday, Perry said what he sees is an economy recovering just like it does following most recessions.
“The recession, by any measure, is worse than anything we’ve experienced in the last three or four decades,” Perry told attendees. “What we can say with some certainty is that we are in an era where the economy recovers slowly.”
Recovery from only one recession in the past 60 years-- in 1980-81-- did not keep going. Perry said that had more to do with government intervention than anything else.
“That recovery died because [Paul] Volcker [Chairman of the Fed and [President ] Reagan stopped inflation and killed the recovery,” he said, noting that Reagan believed that the prospect of runaway inflation would have been more damaging.
Perry went on to note the many positives he’s seeing that indicate the economy is doing just fine in this recovery. “What you want to look at over the next year is not employment [figures], but (payroll) earnings, and earnings are up,” he stated.
What is slowing the recovery, Perry said, is the lack of Americans purchasing services, which make up 75% of the economy. Service growth has been in negative numbers recently. “It means if you’re in the spa business, you’re in trouble,” Perry said, “but if you’re in trucking, you’re in good shape.”
Manufacturing is growing, too. The Institute for Supply Management’s Purchasing Managers Index (PMI) registered 56.3% in August, an increase of 0.8 percentage points when compared to July’s reading of 55.5%. The average PMI for January through August (57.8%) corresponds to a 5.3% increase in real gross domestic product (GDP).
The real good news for the industry, Perry said, is that growth in trucking is outpacing GDP, 4% to 2.5% for the year. This follows trends typical of a recovery.
“You can have ‘Christmas for trucking’ when you don’t have Christmas for the general economy,” he observed.
Another positive sign is the trade deficit, which has started falling again. Perry called it “the best news I’ve heard in the last four or five months.” Historically, when the trade deficit falls, that corresponds to a growth in domestic freight. When the deficit grows, as it has for much of the past decade, that translates to a drop in domestic freight, about 1% per year, Perry said.
Some areas of concern remain, though. New home construction is still lagging and there is a glut of available existing homes for sale. Housing accounts for nearly 25% of services and 15% of goods, Perry said.
Consumer debt is also a concern as is the inability of both individuals and businesses to obtain financing from banks. From 2000 through 2009, the average American spent 94-95% of their income, far higher than previously.
U.S. federal debt is a long-term concern with it approaching $8 trillion. “At some point in the future, our creditors are going to figure out we’re not such a good risk,” Perry said.
Not surprisingly, in the short term anyway, Perry believes the economy-- and the trucking industry-- is in pretty good shape. “There is plenty of corporate capital to fund purchases once the people with the purse strings get some euphoria,” Perry said.
In addition, the diversification of supply chains will help carriers. About 45% of supply chains today touch an international market in some way, he said.
The recovery is going at about the same speed as the recoveries following the 2001 and 1991 recessions, “we’re just starting at lower points, “Perry noted. He is predicting about 4% growth for the industry, “more than enough to drive good pricing and happy truckers.”
Tonnage should also grow faster than GDP, but it will be 2013 before it reaches its peak levels from 2006. Still, Perry doesn’t expect the industry to go wild as the economy improves.
“Truckers were really hurt in the last two years and you can expect them to be very conservative coming out,” Perry said.