Consumers hold the reins

April 1, 1999
If current spending patterns continue, fleets can expect an increase in trafficThe ongoing strength of our economy underscores the powerful role of consumers, who account for nearly two-thirds of economic activity as measured by GDP. Consequently, any significant change in consumer spending will have a ripple effect throughout the economy.That's not to say there aren't other important factors, such

If current spending patterns continue, fleets can expect an increase in traffic

The ongoing strength of our economy underscores the powerful role of consumers, who account for nearly two-thirds of economic activity as measured by GDP. Consequently, any significant change in consumer spending will have a ripple effect throughout the economy.

That's not to say there aren't other important factors, such as investment, foreign trade, and government spending. Recently, for example, low interest rates have encouraged investment spending, with productivity the primary beneficiary. So we've been able to increase production without raising inflation.

Foreign trade, on the other hand, is both a blessing and a curse. When the exchange rate for the U.S. dollar is high, consumers can get more for their money. But a strong economy can also create a substantial trade imbalance since we're importing more than we're exporting. And when foreign goods are cheaper that domestic products, there's always the possibility that we'll lose jobs in the U.S.

A strong economy also means more tax revenues at federal, state, and local levels. When governments don't need to borrow as much money, it helps keep the lid on interest rates. And with government budgets healthy, there's less reason to raise taxes, which means more money in consumers' pockets.

Which brings us back to where we started: the consumer. With unemployment rates declining, companies may have to raise wages to attract hard-to-find workers. While there may be pockets of weakness, such as agriculture in the Midwest and timber in the Northwest, most industries should remain strong, meaning increased demand for skilled and unskilled labor overall.

In recent years, there's been a substantial investment in productivity improvements, allowing manufacturing and service industries to maintain price levels and expand market coverage. Consumers are the big winners here, and have responded by increasing their demand for goods and services. More so, in fact, than most analysts had predicted. But the question of how long this will continue is splitting the ranks of economists worldwide.

Most would agree that the juggernaut shows no sign of internal weakness for the next three or four quarters. In fact, some even think that better inventory controls, faster price adjustments to move retail inventory off the shelves, and more alternatives for sourcing products will only serve to keep the growth in place.

But even if growth slows somewhat, a recovery in overseas markets could increase demands for U.S. goods. This should keep demand for labor high, which in turn means higher wages and more spending money for consumers.

On the other hand, some economists think a greater demand for labor will result in a slowdown in productivity growth. This could lead to inflation, which inevitably means a decrease in consumer demand. But this hasn't happened yet. And there's a limit to how much some companies can raise prices because of the availability of lower-priced imports.

The stock market could also play a role in determining whether or not the current economic engine keeps running in high gear. No matter how well the stock market is performing right now, the possibility of a significant correction is always lurking in the wings. And when consumer wealth declines, demand will be sure to follow suit.

The bottom line for trucking - both private and for-hire - is that the labor pool will remain tight and traffic demand will increase for at least another year. Wholesale fuel prices have increased 35% in the past month, and any OPEC agreement to curtail production could send costs to the $16-per-barrel range from the current $12 range. For fleets, this would mean an increase in variable costs.

It looks like the fleets that can increase productivity - through better use of equipment and labor - will have the competitive edge. Fleets are always looking for ways to improve their use of equipment and labor, but in the coming months the stakes will be even higher if they don't.

About the Author

Martin Labbe

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