“The recession has affected every aspect of our lives, from our bank accounts to our bedrooms and it's forced most of us to reevaluate our financial habits. With many Americans forced to cut back even on essentials, making every dollar count has become more important than ever.” –Dan O'Malley, CEO of financial services firm PerkStreet Financial
In a lot of ways, it all comes down to the consumer in trucking. I mean, let’s face it – everything we buy as a collective population here in the U.S. gets delivered at some point, in some shape or form, by truck. Whether we’re purchasing groceries, clothes, cars, bathroom fixtures, or washing machines, those buying decisions translate into freight demand. Extrapolate that to the world at large and now you’re driving global freight demand.
So what’s the consumer thinking these days? Are folks still retrenching on the home front, putting off major purchases in order to build cash reserves? Or are they starting to spend a little more after a hard couple of global economic years here?
Also, what are folks thinking about government spending and taxation? This is not unconnected from consumer spending, I might add, for when people get wind of higher taxes, most start making cuts to the household budgets to pay for them (while raising holy hell about them in the bargain ... but that’s another story ...)
First, let’s get a quick update on the overall economic picture for the U.S. – a picture that turned a shade or two darker since yesterday.
Bart van Ark, chief economist for The Conference Board, said the rebound effects from the recession have almost entirely dissipated and a growth slowdown is becoming increasingly apparent for the summer and beyond.
U.S. gross domestic product (GDP) growth for the second quarter, which just ended, might turn out to be the highest for the year, yet even here there is a downside risk of the consumer data coming in lower than currently forecasted, despite an uptick in April and March. That being said, there are no signs of a “double dip” recession as The Conference Board’s Leading Economic Index (LEI) for the U.S. points to continued yet slower growth for the rest of this year.
“Weak consumer confidence, slow job growth and flat confidence levels among CEOs, just to mention some of the latest data points, all support the slow growth scenario,” van Ark noted.
“We also find that there has been a significant re-pricing of credit risk suggesting that financial markets are also weighing lower growth prospects,” he added. “Altogether we expect GDP growth in a range of 1.5% to 2% in the second half [of 2010] as a result of slow consumer spending, weaker investment growth and a significant cutback in government spending.”
The Federal Reserve didn’t brighten things much with the release of details from its late June meeting. While the recent data on production and spending were broadly in line Fed’s expectations, the pace of the expansion over the next year and a half was expected to be somewhat slower than previously predicted.
Add to that intensifying concerns among investors about the implications of the fiscal difficulties faced by some European countries contributed to an increase in the foreign exchange value of the dollar and a drop in equity prices, which seemed likely to damp somewhat the expansion of domestic demand, the Fed said. The implications of these less-favorable factors for U.S. economic activity appeared likely to be only partly offset by lower interest rates on Treasury securities, other highly rated securities, and mortgages, as well as by a lower price for crude oil.
However, the Fed still expected that the pace of economic activity through 2011 would be sufficient to reduce the existing margins of economic slack, although the anticipated decline in the unemployment rate was somewhat slower than in the previous projection.
Yet even as economic storm clouds gather, with economists beginning to think a greater possibility for a double-dip recession exists, consumers are generally becoming positive about the economy's future, according to a survey conducted by PerkStreet Financial. While the firm conducted its online poll back between June 11-15 – long before the most recent spate of gloomy economic news arrived – the results are still surprising, in more ways than one.
PerkStreet’s survey – conducted by Harris Interactive with 2,174 adults ages 18 and older – found that 44% of adults believe the economy is improving, though there is a long way to go. The poll also found one in five Americans (20%) have reduced their spending on essentials like food and medication, with 8% of those personally affected by the recession reporting a negative impact on their sex lives (oh no!).
About 83% of adults have taken action because of the recession, PerkStreet’s poll found 41% of adults spending more time shopping for the best deals and 40% reporting increased use of coupons. Overall, 57% of adults who have taken action because of the recession made changes in their overall spending habits, and 61% said they have cut back on entertainment expenses like dining out or travel, the poll found.
PerkStreet’s survey also discovered that region differences affect people's attitudes about the recent financial crisis and their specific financial situations. Those in the Midwest, for example, are more likely to blame Wall Street and big banks for the financial crisis (48%), compared to those in the West (39%), while adults in the Northeast feel they’ve been impacted more by the recession (84%) than those in the Midwest (77%).
Now, how are people feeling about government actions these days, as said action relates to spending and taxation?
Well, a poll conducted by the Financial Times (FT) newspaper and Harris interactive found that when it comes to reducing deficits and public debts, cutting spending is definitely preferred to raising taxes by adults in the five largest European countries and the U.S.
Half of French adults (50%), just over two in five Italians (45%), Spaniards (44%) and Germans (41%), and just under two in five Americans (37%) and one-quarter of Britons (25%) all would prefer spending cuts to paying higher taxes. Around two in five in each of the six countries (between 37% and 46%) would prefer a mixture of the two, with spending cuts bearing the bigger part of the burden.
Looking at how spending cuts will impact the economic recovery, majorities in all six countries (between 84% in France and 62% in Italy) believe that public spending cuts are necessary to help long term economic recovery. People also DON’T feel that public spending cuts are likely to harm the economic recovery – only 38% of Italians, 33% of Germans, 31% of Britons, 29% of Spaniards, 27% of Americans and 16% of French adults think that it will, the poll found.
Now, this online survey polled 6,164 adults aged 16 to 64 worldwide, split up within France (1,011), Germany (1,010), Great Britain (1,091), Spain (1,005), U.S. (1,019) and adults aged 18-64 in Italy (1,028), all between June 22 and July 1 this year.
One other suggestion is that governments should make the rich contribute more than the less well off by paying more in taxes (well, isn’t THAT a surprise … NOT!).
Very strong majorities in Italy (87%), Germany (87%), France (85%), Spain (82%), Great Britain (78%) and the United States (71%) all agree with this idea. In fact, majorities in Germany (61%), Spain (60%), Italy (56%) and France (51%) strongly agree with it.
Now, a more interesting finding is that though people prefer cutting public spending, they also realize that those cuts will impact their families.
Almost half of Spaniards (49%), just over two in five Italians (44%) and French (42%), two in five Americans (40%), just under two in five Britons (39%) and over one third of Germans (35%) believe cutting public spending will affect them and their family a moderate amount, the FT/Harris poll discerned.
In addition, over one-third of Italians (34%), just over one in five Britons (21%), one in five Germans (20%), and just under one in five Spaniards (18%), French (16%) and Americans (16%) say spending cuts will affect them and their family either a great deal or a lot.
When it comes to spending cuts, the FT/Harris poll found people believe certain areas should receive more severe cuts than other areas. Almost three-quarters of Americans (72%) and almost two-thirds of Britons (64%) say aid to developing countries should bear the biggest part of the spending cuts burden. While over half of Spaniards (57%), Germans (54%) and French (53%) say the same, it’s not their top choice.
Two-thirds of Germans (67%), and over half of Spaniards (58%), French (56%) and Italians (55%) say the biggest part of the spending cuts burden should come from defense. Over half of Britons (51%) also say unemployment benefits should bear the biggest part of the spending cuts burden.
Here’s another interesting finding: though many countries have let their government budget deficits increase in order to fight the financial crisis, many think that was the wrong move. Majorities in France (68%), Italy (68%), the U.S. (59%), Germany (58%), Spain (55%) and Great Britain (54%) say that was not the right move for these countries to make.
One argument is that the budget deficits that have occurred and the spending cuts call for a re-examination of Europe's welfare states. Over two-thirds of Americans (77%), Britons (77%), Germans (73%), Spaniards (70%), Italians (68%) and French (68%) all agree with this argument.
A nice coda to all of this comes at the end of the FT/Harris poll sums in a simple subtitle: “So What?” It’s an apt question. What does all of this mean in terms of consumer spending and – ultimately – freight demand?
For starters, the world’s economic woes are not going away anytime soon, growth will be slow, and people will remain cautious about how and what they spend money on. Yet confidence is also growing among consumers that better days are ahead – and that those days may arrive sooner rather than later. Will that confidence keep freight demand up? Time will only tell on that.