Heading down a difficult stretch

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What should of course be a time of merriment and well wishes is turning into a very stressful period in terms of economic forecasting as Obama administration and Congress continue to wrangle over solutions to the fiscal cliff.

It doesn’t help matters that a range of economic experts are ramping up warnings about the consequences if no deal materializes.

From a freight perspective, the risks of going over the cliff are pretty straightforward: if no deal is reached and automatic tax hikes take place, another recession could occur – snuffing out what are, at the moment, only moderate prospects for decent freight demand next year.

For example, in its fourth and final quarterly report for 2012, the UCLA Anderson Forecast predicts that U.S. gross domestic product (GDP) will grow at less than a 2% annual rate through mid-2013, but then ratchet up to exceed 3% for most of 2014 with housing activity leading the way.

That’s all predicated on a big “if,” meaning that some sort of settlement must be reached on the fiscal cliff for even that moderate (some would even say “anemic”) forecast to occur.

“If they don't, according to the Congressional Budget Office, the economy will fall back into recession with unemployment returning to 9% late next year," noted David Shulman (at left), the UCLA Anderson Forecast’s senior economist.

“Even if a compromise is reached, considering the recent upward revision to the third quarter GDP data, the near-term outlook for the U.S. economy continues to be characterized by modest growth," he said. "Specifically, we are forecasting that real GDP will increase at an annual rate of only 0.7% in the current quarter and less than 2% growth in 2013's first half."

The risk for trucking, of course, is that when GDP falls below 2%, freight disappears at a rapid rate; that’s the rule of thumb posited by Noel Perry, senior consultant with FTR Associates, during the firm’s most recent State of Freight webinar.

The UCLA Anderson Forecast goes on to predict, though that if a fiscal cliff deal is brokered and the U.S. economy stays on track, unemployment should stay close to the current 7.9% rate in 2013, but gradually decline to 7.2% by the end of 2014. By the end of the forecast period, inflation is expected to be above the Federal Reserve's 2% target, bringing to an end the zero interest rate policy that has been in place since late 2008.

The worry right now is how all the negative back-and-forth between the White House and Capitol Hill over fixing the fiscal cliff is beginning to dampen consumer sentiment.

One metric that’s useful to look at where consumers are concerned is the Randstad Employee Confidence Index, which decreased last month to 51.7, breaking a previous two-month climb in confidence.

Randstad said in its November Index, employees showed increased uncertainty around the availability of new jobs and in the strength of the economy. Yet despite the decrease in optimism, the majority of U.S. workers (59%) maintain strong levels of confidence in their employers' future. Additionally, slightly more workers expressed an increased sense of job security.

"November was a month of ups and downs for the U.S. labor market, but for the most part, our Index has remained fairly high given the mixed economic headlines," said Jim Link (at right), managing director of human resources for Randstad U.S.

"With the presidential election behind us, economic anxiety still exists around the so-called fiscal cliff, potential sharp tax increases, and the economic outlook overseas,” he noted. “Yet, there are some very positive signs as we move into the last month of the year. The retail holiday season started off strong with more sales activity in stores and online when compared to 2011. Consumers are also more confident than we've seen since early 2008, while the housing market is showing signs of recovery, and third quarter GDP growth was revised upward to 2.7%.”

Yet despite this welcoming news, Link said the economy still remains fragile and the unemployment rate will likely show little movement as 2012 draws to a close.

Thus, in terms of the outlook for freight, the final few weeks of 2012 will prove to be a very nervous ninth inning indeed.

Discuss this Blog Entry 6

on Dec 10, 2012

It really doesn't matter whether the crooks in DC do something about the "Fiscal Cliff" or nor. Higher taxes for the middle class, ( read, working people) are going to happen. They can posture all they want, but it will happen. Of course that will mean there will be less money out there to buy "stuff"...meaning less freight. The freight that is to be had will be jacked up to offset losses, meaning stuff is going up in the stores, meaning people buy less.

"Taxing the rich" is kind of a ridiculous statement. The rich don't pay taxes, or very little. They pay accountants millions to get out of paying taxes. All of the new taxes that do hit them will be passed on in the form of higher prices for, whatever. Again, the middle class will pick up the tab.

We went over the cliff on Nov 6...we just haven't realized it yet.

on Sep 4, 2013

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on Dec 10, 2012

Sean,
ssgintx is on to it. The spending has to be reigned in. The more the gov't gets, the more it spends. They will not spend less until they receive less. If Congress raises our taxes, that leaves less money to be spent in the private sector, thus the economy suffers. The more government collects, the more they waste, the higher the deficit and the debt. Higher taxes, on the "rich" or the "poor", is not the answer.
Steve Myers

on Aug 4, 2013

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on Aug 8, 2013

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on Aug 14, 2013

Do you think you’re thinking about doing a follow-up posting about this? Will you be going to keep bringing up-to-date .iherb scam

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