Surely a slog, but in the right direction

June 21, 2013

It’s been a topsy-turvy economic ride over the past several years, with all sorts of bumps in the recovery along the way – with yesterday’s big stock selloff but one example of how even seemingly mild news can trigger wild market swings.

Then there’s the sluggish economic pace being experienced by the U.S. – a pace not expected to speed up anytime soon. For instance, look at the latest forecast from TD Economics, which predicts the U.S. economy will grow 1.9% by the end of 2013 then accelerate thereafter to 2.8% in 2014; not exactly numbers you’d want to throw a part for.

Still, it’s growth all the same, which is far better than some of the alternatives.

Indeed, Kevin Smith, president and CEO of Sustainable Supply Chain Consulting, perhaps summed the situation up best during perhaps one of the pithiest lines I’ve heard in a while during release of the 24th annual State of Logistics report this week: “The U.S. is one of the few economies actually growing in the world. Maybe it’s slow growth, but that’s preferable to a precipitous decline that’s a prelude to falling off a cliff.”

There’s good news on the freight front, too. For example, the for-hire truck tonnage index compiled by the American Trucking Associations (ATA) trade group jumped an entirely unexpected 2.3% in May after falling 0.2% in April. Compared with May 2012, the index surged 6.7%, which is the largest year-over-year gain since December 2011, noted ATA Chief Economist Bob Costello. Year-to-date, compared with the same period in 2012, the ATA’s tonnage index is up 4.5%, he added.

“After bouncing around in a fairly tight band during the previous three months, tonnage skyrocketed in May,” Costello said. “While we heard good reports regarding freight levels during May, I have to admit I am a little surprised at the large gain in tonnage.”

He pointed out that some of the increase is attributable to factory output rising in May for the first time since February (up 0.2%) and retail sales performing stronger than expected in May (up 0.6%), while a 6.8% surge in new housing starts during May also pushed tonnage up as home construction generates a significant amount of truck tonnage.

Costello also noted that that tonnage continues to outpace the number of loads hauled as heavy freight (e.g., housing construction materials and sand and water for hydraulic fracturing) is outperforming box trailer (i.e., dry van) freight.

There’s also more positive freight data being generated from a global perspective. For example, after a two month sequential decline, the Stifel Logistics Confidence Index – crafted by Wall Street firm Stifel Nicolaus and Britain’s Transport Intelligence – ticked up in June, finishing out an otherwise lackluster second quarter on a high note.

This index is a survey-based measure of both airfreight and ocean freight volumes in Europe-based trade lanes, combining present conditions with near-term expectations, and June’s reading of 51.4 was 1.3% higher than May's reading of 50.7, and 10 basis points higher than the year-ago period.

Indeed, while Stifel noted that this increase isn’t “exciting” by conventional standards, and though there’s been some oscillation over the past few months, a pattern of readings above the 50 benchmark value for nearly all of 2013 may signal a bottoming, at least in the Europe-based trade lanes that the index covers.

“While present volumes in European-based trade lanes continue to lag normal seasonal levels, they are no longer worsening,” Stifel said. “Moreover, optimism seems to be on the rise for some kind of economic improvement in Europe. In fact, recent cuts to the European economic forecast by the World Bank were mainly reflective of what's already happened year-to-date, and growth is expected to resume in 2014.”

Now let’s return to the U.S. and take a look at a new report issued by the aforementioned TD Economics, which offers a surprisingly robust outlook for the months ahead – far more robust than I for one expected.

"The outlook for the economy is characterized by the increasing resiliency and confidence of the private sector up against ongoing fiscal restraint," noted TD Chief Economist Craig Alexander.

"In the first quarter the headwind on the economy was tax hikes. In the second and third quarters it will be spending cuts from sequestration. As these drags lift, a sturdier foundation for economic growth will be revealed."

Alexander added that what he dubbed the “resiliency” of the American consumer was on full display in the first quarter of this year. “Despite a hefty increase in taxes that cut nearly 4 percentage points from income growth, consumer spending rose by an impressive 3.4%,” he explained. "The strength in consumer spending is evidence that the negative impact of deleveraging is waning [with] improved balance sheets providing an offset to fiscal drag.”

Though automatic government spending cuts went into effect in March and will lead to the furloughs (unpaid days off) for millions of federal employees over the next several months – something very likely to weigh on economic growth – Alexander believes the underlying recovery in the private sector will continue.

"We anticipate that by September, the worst of sequestration will have passed and the Federal Reserve will have sufficient positive economic news to begin tapering their asset purchases, with the goal to end purchases outright in the first quarter of 2014,” he said.

“Also, the improvement in household net worth has much to do with the turnaround in the housing market – and the rebounding housing market will go a long way to supporting economic growth and offsetting the drag from fiscal policy,” Alexander added.

Let’s just hope those predictions pan out as expected.

About the Author

Sean Kilcarr 1 | Senior Editor

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