Uncertainty is the new certainty

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One of the increasingly frustrating aspects of trying to get some perspective on the economic portents for trucking is that almost every metric out there is in flux: moving from good to bad to maybe OK then down to maybe not, with no let up in sight for such yo-yoing.

Take the Conference Board’s Consumer Confidence Index for example: it declined to 61.9 in March, leading to much handwringing before bouncing back up to 68.1 in April. Normally, most pundits would cheer such an uptick, but Lynn Franco, director of economic indicators for the Conference Board, put things in a much more sober perspective.

"Consumer Confidence improved in April, as consumers' expectations about the short-term economic outlook and their income prospects improved,” she said. “However, consumers' confidence has been challenged several times over the past few months by such events as the fiscal cliff, the payroll tax hike and the sequester. Thus, while expectations appear to have bounced back, it is too soon to tell if confidence is actually on the mend."

Then there are home prices – a key metric of the housing industry’s health which, not too surprisingly, generates a lot of freight for truckers larger and small.

According to S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices, average home prices increased 8.6% and 9.3% for the 10- and 20-City composites in the 12 months ending in February this year – with the metric’s 10- and 20-City composites rising 0.4% and 0.3% from January to February.

David Blitzer, chairman of the Index Committee at S&P Dow Jones, added that all 20 cities covered by the indices posted year-over-year increases for at least two consecutive months. "Home prices continue to show solid increases across all 20 cities," he said. "The 10- and 20-City Composites recorded their highest annual growth rates since May 2006; seasonally adjusted monthly data show all 20 cities saw higher prices for two months in a row – the last time that happened was in early 2005.”

Good stuff, right? Well, maybe … and maybe it’s not as good as it seems. For example, buried in this story is the observation that investors are the ones doing most of the buying thanks to the low interest rates still being maintained by the Federal Reserve – not John Q. Public.

Then there’s the jobs picture, which remains sluggish at best, worrying a lot of economists. Indeed, ADP’s April jobs report indicated employment rose by only 119,000 – far less than the 150,000 many economists not only predicted but recognized the U.S. economy needed to create to help tackle the unemployment rate.

Yet here’s the funny thing about the jobs numbers: chief executives are reportedly showing increasing confidence in the nation’s economic prospects, so you’d think that would translate into more hiring.

Indeed, the Conference Board's Measure of CEO Confidence, which had increased in the fourth quarter of 2012 to 46, improved again in the first quarter this year to 54. Some 36% of the CEO’s polled by the Conference board claimed conditions are better compared to six months ago, up from 15% in the fourth quarter of 2012, with 29% of those business leaders saying conditions in their own industries improved, compared to the 13% the fourth quarter.

On top of that, the short-term outlook at the CEO level is also supposed to be more optimistic, with some 32% of business leaders polled by the Conference Board expecting economic conditions to improve over the next six months, up from 23% last quarter.

Yet Lynn Franco again throws a pail of cold water on any attempt to paint a rosy picture for the U.S. economy based on those perspectives. “CEO Confidence improved again, but still remains rather weak,” she stressed “However, expectations are that conditions will modestly improve in most markets, with the exception of Europe where the outlook for the next six months remains pessimistic."

Here’s another such “mixed message” in a poll dubbed Mid-market perspectives: 2013 report on America's economic engine conducted by global consulting firm Deloitte LLP.

After sustained economic turmoil, Deloitte’s survey found that many mid-market executives have a stronger footing and are taking the necessary steps to make the sector an engine for growth in the next year. However, while optimistic about their own growth, according to Deloitte’s findings, they have lower expectations for U.S. economic growth – with the majority (57%) of respondents anticipate that over the next year the economy will grow less than 2% or not at all.

Why such a "bare-bones" forecast, you ask? Well, Tom McGee, national managing partner for Deloitte Growth Enterprise Services, pointed out that the mid-market executives surveyed believe government budget challenges (69%), rising health care costs (60%), and high tax rates (53%) are the greatest obstacles to U.S. economic growth, with all three perceived to be greater obstacles to respondents this year than they were in 2012.

"In order for the economy to regain its momentum and allow businesses to fully prosper, the survey respondents want government to make meaningful progress on the issues that are creating uncertainty and hindering economic growth,” McGee noted.

And wouldn’t you know it – as a result of that uncertainty, Deloitte’s poll finds that companies are now operating more “pragmatically” with nearly half (43%) of mid-market executives deferring major investments due to the “uncertain business climate.”

What’s that mean? For example, executives surveyed by Deloitte are ranking hiring among the lower priorities for capital investment in 2013, with only 2% of respondents listing it as their top priority and just 7% listing it as their second highest priority.

Training was the number one most likely investment in talent in 2013 which may indicate that companies are taking matters into their own hands to address challenges with finding skilled workers, with technology remaining a high priority for capital investment, with almost half (46%) of mid-market executives ranking it as one of their top three investment priorities.

That doesn’t bode very well for either freight or job creation, to my mind, yet still the outlook is still being characterized as “optimistic” in many corners.

Then again, maybe that’s the best that can be done with the economy the way it is. We’ll see.

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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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