Freight traffic on the rise

Aug. 1, 2003
We continue to hear about the lack of new jobs during a time when our economy is actually expanding. Most pundits attribute this seeming contradiction to the increased productivity of the labor force. According to the Bureau of Labor Statistics, Productivity is a measure of economic efficiency which shows how effectively economic inputs are converted into output. The problem with using that definition

We continue to hear about the lack of new jobs during a time when our economy is actually expanding. Most pundits attribute this seeming contradiction to the increased productivity of the labor force. According to the Bureau of Labor Statistics, “Productivity is a measure of economic efficiency which shows how effectively economic inputs are converted into output.”

The problem with using that definition is that most analysts focus on unit labor costs or productivity itself. Again, according to BLS: “Labor productivity is the ratio of the output of goods and services to the labor hours devoted to the production of that output.”

It makes sense that the number of labor hours would decrease as employees become more efficient — either through their own efforts or because their companies have invested in better machinery and/or systems. We would also expect productivity to increase as we decrease the total number of person-hours — and thus people — it takes to complete a task.

But what if we have more employees on staff than we need — primarily because management is too busy with other issues to determine whether all their employees are really necessary to get the job done?

When management does get around to this — and discovers that it doesn't need everyone — people are laid off. Does this mean that they weren't good workers or good employees? No. But it does mean that management was not paying close enough attention.

During the 1990s, companies grew faster than ever before, which meant they needed more workers. With the demand for labor so strong, businesses were willing to offer significantly higher wage packages.

Some industries were better able to finance these increased wage packages than others, and workers migrated to them willingly. However, most people that went to work for start-up companies had no clue about the probable success or failure of their employer. But times were good, so they asked no questions.

At the same time, the strong economy enticed many families to increase their standard of living. The increase in two-income households also created more purchasing power, fueling the demand for goods. Spending patterns suggested that people had simply decided the laws governing economic cycles had been repealed.

The adjustment process we've been going through to wean us from the luxury of excess labor and wasting time on non-essential activities is not over yet. We've got to think of it as a healthy pruning that must be done periodically. This time, however, more people will remain unemployed because they don't have the skills for the jobs that are being created, and the work force itself is larger.

Trucking should see continued growth in demand for its services throughout the next several quarters. The restrained level of investment by businesses during the past two years can't continue; equipment must be replaced and systems upgraded. Two factors should also contribute to growth in the demand for consumer goods: the employment level is reasonably stable, and real wages increased during the past year. A decrease in unemployment, which could begin in September, will add to overall demand level.

Consequently, for the next several months freight traffic should increase at a rate that will sustain current levels of equipment use at levels of productivity that should be profitable.

A major problem facing fleets will be the need to replace equipment during 2004, since they postponed doing so in late 2002 and 2003. Unfortunately, the need for capital will come during a time of rising interest rates, as well as rising prices for vehicles.

About the Author

MARTIN LABBE

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