KATRINA UPDATE: GDP growth will slow

KATRINA UPDATE: GDP growth will slow

The damage Hurricane Katrina inflicted on the oil and refining infrastructure will slow down the real growth rate of the U.S. economy in the short term as consumers spend more on energy and less on general goods

The damage Hurricane Katrina inflicted on the oil and refining infrastructure will slow down the real growth rate of the U.S. economy in the short term as consumers spend more on energy and less on general goods, economists say. This will slacken freight growth on a national level. But on a microeconomic level, trucking around the hurricane-afflicted Gulf region will get a boost.

U.S. economic growth will drop from 3 to 4%, to 2 to 3% until mid-2006, predicted Associated General Contractors of America (AGC) chief economist Ken Simonson.

“The most important effect on trucking is the macroeconomic impact of Katrina,” Simonson told FleetOwner. “There will be a slowdown in the rate of economic growth for a few quarters. People will spend more money on heating homes and less on consumer nondurables and services. It’ll reduce the demand for the whole economy and reduce general freight in material.”

“The biggest concern is primarily how consumers respond to increases in energy prices,” Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC) told FleetOwner. “If consumer spending slows down significantly, then freight volumes will slow down. But the economy had momentum before Hurricane Katrina. But it will slow down GDP (gross domestic product) growth by maybe a half a percent until 2006.”

The American Trucking Assns. (ATA) hasn’t wavered from its prediction that freight tonnage will grow between 2.25 and 2.75% this year.

“In the short-term Katrina will have a negative impact on trucking because normal trucking operations in those regions (affected by the hurricane) have come to a near grinding halt,” ATA said in an emailed statement. “The storm is also forcing supply chain patterns to change for the time being as freight is being re-routed.”

ATA added that based on the Energy Information Administration’s recent increase in fuel price projections, trucking will spend $85 billion on fuel this year—a $23-billion increase over 2004.

But around the Gulf Coast, niche carriers are now abuzz with activity.

“I would say specialized carriers have gotten a lift from all the demand to move heavy off-road equipment to the hurricane-struck area,” Simonson told FleetOwner. “I heard from several contractors that equipment from the furthest part of the country is being sent to Louisiana. Everyday utility vehicles and trucks are moving into Mississippi. I would expect to see off-road equipment to continue being moved for many months.”

Carriers hauling vehicles into the region will see a lot of empty miles however, as they typically won’t haul anything out of it, AGC’s Simonson noted. Conversely, there will be demand to haul vehicles out of the region eventually, he added.

“For building material carriers there will be some uncertainty as the rebuilding demand is going to be much more gradual,” Simonson said. “For them, the obstacles will be [public policy] arguments over who needs to pay for the construction, and where is it safe to do it.

“Right now there is so much demolition that needs to be done,” Simonson continued. “For companies who haul mobile homes, offices and school trailers-- anything that can be used as temporary facilities— there will be an enormous demand not just in the hurricane zone, but in the states where the refugees show up. Other winners are companies that haul portable toilets and service them and hazmat waste materials. The demolition will produce lots of demand for dump trucks, strip grinders. Basically lots of specialized trucks will be needed, and the demand should spill over to manufacturers of those kinds of vehicles.”

“After the hurricane cleanup there will be an economic stimulus as rebuilding efforts gain momentum,” noted CMVC’s Brady.

To discuss the Katrina disaster and its effect on the trucking industry or to share your personal experiences, please visit FleetOwner's Katrina Blog at blog.fleetowner.com/katrina.

To view the archive of FleetOwner’s ongoing Katrina news coverage, go to www.fleetowner.com/katrina.

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