Gauging economic prospects

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In both the [survey] results and among our clients, we're seeing CEOs increasingly view international markets as holding the best growth opportunities. But they're navigating a complex environment as well – reviewing a variety of tactics for global expansion, as well as strategies for dealing with ongoing economic uncertainty." –Ken Esch, a partner with Pricewaterhouse Cooper’s private company services practice

Truckers more than anyone know this is a very ticklish time for the U.S. economy, with growth here at home stalling out to a degree in recent months – which might translate into lower freight volumes in the not-so-distant future.

Then again, this may just be another stage on the path of economic overhaul, as our economy – like much of the world’s – continues to undergo a variety of changes in the face of new factors, such as the ever-larger (and still cheaper) workforces in places such as China and India. [Jason Thomas, chief investment officer of Aspiriant, made some interesting comments on this theme recently for CNN.]

Consulting firm PricewaterhouseCoopers (PwC) recently chiseled some information out of some 225 top U.S. CEOs and CFOs in its quarterly Private Company Trendsetter Barometer, with 145 of those executives from companies in the product sector and 110 in the service sector, averaging $252.4 million in enterprise revenue/sales.

As uncertainty about market conditions prevails, only 39% of them voiced optimism about U.S. economic growth over the next 12 months – down from the previous quarter's 45% and four points below a year ago.

However, 45% of companies with international operations were optimistic about U.S. economic growth, markedly more so than their domestic-only peers (35%). As for international marketers' optimism about the world economy, that rose to 43% (up six points from the second quarter).

International marketers' confidence was further evident in their revenue forecasts, said PwC. While U.S. domestic-only private businesses forecasted a 7.7% growth rate over the next 12 months, international marketers forecasted a 12.2% growth rate.

And despite ongoing concern about the U.S. economy, the CEOs in PwC’s survey overall forecasted 9.7% growth in their companies' revenue over the next 12 months, up from 9.1% the previous quarter. Almost three-fourths of them are anticipating positive revenue growth for their businesses over the next 12 months, with 38% expecting double-digit growth and 37% anticipating single-digit growth. Only 6% forecasted negative revenues, with 15% expecting zero growth, PwC noted.

Still, this may turn out to be more like “over-confidence” instead of confidence based on other metrics gauging U.S. economic prospects. For example, the Ceridian-UCLA Pulse of Commerce Index (PCI) grew a measly 0.4% in November after three consecutive months of decline; anemic growth that didn’t come close to offsetting October’s 0.6% decline, nor the 2.1% decline experienced by PCI since July.

Though on a year-over-year basis the PCI is up, the three month moving average has been declining for four months, suggesting relative weakness within the goods producing segments of the economy, Craig Manson, senior vp and index expert for Ceridian, which provides the diesel fuel consumption data upon which the PCI is based, told me this week.

“Standing by itself, the PCI reading for November is not bad. We’re seeing some economic growth and you can’t sneeze at that,” he said. “But it’s not nearly enough growth to offset the drop in October, much less the decline over the last three months. We would really need a substantial surge in the PCI this December to reach fourth quarter GDP [gross domestic product] growth expectations of 2.5%. As the PCI data stands now, we’d not even reach 2%.”

The PCI closely monitors the over-the-road movement of raw materials, goods-in-process and finished goods to U.S. factories, retailers and consumer by tracking the volume and location of fuel being purchased, Manson added. Thus the raw fuel purchasing data collected by Ceridian is crunched by economists at UCLA Anderson School of Management and Charles River Associates to obtain a “real-time” measure of the flow of goods to U.S. factories, retailers, and consumers.

“In short, November’s ‘up’ is relative to a low-bar so the growth is only mildly encouraging,” explained Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. “The flatness we’re seeing with the latest PCI data reflects inventories in motion which seem to be signaling a weak fourth quarter.”

Right now trucking looks good in various regions of the U.S. – for starters, preliminary Bureau of Labor statistics numbers indicates that trucking added 8,800 jobs since March this year – but Leamer cautioned that could be more due to rising important than domestic economic activity.

“It could be symptomatic of national economic weakness, as imports from abroad can hold back domestic job formation – in manufacturing and other sectors, for example,” he said.

Indeed, PwC found that in this past quarter more private companies (33%) said their growth plans would involve new strategic alliances (up 14 points from the second quarter) mostly with international firms.

“While this can be a very effective way to gain access to key global markets, as well as increase speed to market, it's just one among a variety of entry points,” noted Ken Esch, a partner with PwC’s private company services practice.

“Yet to maintain profitability in the current environment, companies will need to stay focused on managing costs, even as they move to execute growth plans,” he added. “Striking this balance can be a challenge even in the best of times. So, at present, many of them are hedging their bets, waiting to see if economic, legislative, and regulatory uncertainty will abate in the coming months.”

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Trucks at Work: Sean Kilcarr comments on trends affecting the many different strata of the trucking industry.

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