Trucking’s recovery will bounce along with the economy

While the global economy and freight volumes continue to strengthen, the recovery will not be smooth over the near term, according to experts. Some even fear a double-dip recession remains a real if remote possibility

While the global economy and freight volumes continue to strengthen, the recovery will not be smooth over the near term, according to experts. Some even fear a double-dip recession remains a real if remote possibility.

“We are seeing signs of a global recovery that is slowly emerging from the recession, with the developing world recovering at a much stronger rate than the developed economies, but with all economies still more fragile than anyone cares to admit,” said Diane Swonk, chief economist for Chicago-based Mesirow Financial.

“The result of this instability is that economists estimate the risk of a double-dip recession at just under 15%, and no one believes it is out of the question, especially for the developed economies,” she stressed.

Read more about the economic recovery

Swonk noted that the U.S. economic recovery is expected to accelerate in 2011, but remain subdued given the extraordinary losses endured during the recession. Gains will remain unevenly concentrated in investment and exports instead of consumption and housing, which in her view does not bode well for job creation or income growth.

Exports are accelerating, according to the U.S. Commerce Department. Its latest figures show U.S. exports increased in May by 2.4% to $152.3 billion from April. Imports increased at a slightly higher rate of 2.9% in May over April to $194.5 billion.

"As the global recovery inches forward, it is likely to lose momentum over the next year, and the risks of slipping into a Japanese-like deflation are possible, especially in light of the drag associated with increased financial regulation and more aggressive austerity programs in Europe,” added Swonk. “And if we do face a double-dip recession, there is little left in our fiscal and monetary arsenals to combat it; there are few places to go when interest rates are already at zero.”

Others, however, offer a more positive economic forecast for the U.S. – and, by extension, the trucking industry. Edward Leamer, chief economist for the Ceridian-UCLA Pulse of Commerce Index (PCI), tracked by the UCLA Anderson School of Management, said the numbers tell a very different story.

Though the PCI tumbled 1.9% in June after an impressive 3.1% gain in May, it seemed to reinforce the fear that the economy is on the brink of a double-dip recession. But that’s not necessarily the case, Leamer explained.

“While June's number is substantially down, erasing two-thirds of May's great gain, the daily and weekly activity on which the monthly PCI is based does not suggest that the economy is heading over a cliff,” he stressed.

“Part of the apparent strength of May and weakness in June is the result of the Memorial Day holiday occurring on the last day of May, allowing the negative ‘Memorial Day’ effect, which is usually confined to May to leak into June,” he pointed out. “More importantly, the June weakness was confined to the first two weeks, and by the second half of June, we were seeing strong growth again.”

The PCI data also indicates strong year-over-year and quarter-over-quarter growth, even though the month-to-month comparison is worrisome. The annualized number for June climbed 8.6%, the seventh consecutive month of positive year-over-year results. In short, “the PCI has not been showing the sustained negative numbers characteristic of a double-dip recession,” Leamer said.

Indeed, according to a recent survey by The Conference Board, confidence in the U.S. economy continues to be steady among chief executives of major businesses.

The group’s Measure of CEO Confidence poll, which decreased in the first quarter of 2010, remained unchanged in the second quarter at 62 – a reading of more than 50 points reflects more positive than negative responses.

CEO appraisal of current economic conditions was slightly less favorable, with 67% saying conditions have improved compared to six months ago, down from 71% last quarter. Yet in looking at their own industries, business leaders' assessments improved, with 61% claiming conditions are now better, up from 59% last quarter.

On the issue of profit expectations over the next 12 months, 72% of chief executives foresee increases, with those engaged in the durable goods industry the most optimistic, with 88% of those polled expecting profit growth. Executives in the non-durable goods industry are second, with 78% anticipating an increase in profits, while only 59% of executives in the service industry expect profits to increase.

“CEO confidence held steady in the second quarter and expectations signal no change in the pace of economic growth in the coming months,” noted Lynn Franco, director of The Conference Board’s consumer research center. "The outlook for corporate profits remains optimistic, with almost half saying market/demand growth will be the principal driving force
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