”It is apparent the economy has still not committed to either continued growth or a real decline. There have been some positive signs from the latest set of leading economic indicators … but there have also been renewed signs of distress. Not surprisingly, there is a sense that much has stalled in the economy as uncertainty has been the rule of the day.” –Chris Kuehl, managing director for Armada Corporate Intelligence and economic advisor to the National Association of Credit Management (NACM)
The U.S. economy seems stuck in a sort of “unhealthy neutral” of late, gears grinding together as some sectors fare well (such as manufacturing) while others do poorly – creating a more volatile freight environment for truckers.
The “big picture” view of things didn’t get any better with the advanced estimate of U.S. gross domestic product (GDP) release by the Bureau of Economic Analysis (BEA). According to its projections, GDP growth officially edged up only 1.3% in the second quarter this year, following a meager 1.9% in the first quarter.
Though GDP remains in positive territory (always a good thing, considering the alternatives) economists say 3% GDP is what’s required just to keep the unemployment steady and keep up with population growth, whereas a GDP growth rate of 5% is required for a year to knock down the unemployment rate by a measly one percentage point.
Looking at where we are today, though, it seems entirely unlikely we’ll such robust GDP growth figures anytime soon.
“Growth should pick up in the second half because of lower energy prices and a recovering automotive sector,” noted Nigel Gault, an analyst with research firm IHS Global Insight. “[But] we are not expecting gang-busting second half numbers, however. Indeed, third-quarter growth is likely to come in under 3%.”
And based on the lackluster GDP numbers of late, anything decently over the 2% growth range may be overly optimistic.
“If there is anything to be somewhat encouraged by it is that manufacturing improved over the really down month last July, but at the same time there was weakness in the service sector that didn’t appear the previous month,” said Chris Kuehl, managing director of Armada Corporate Intelligence and an economic advisor to the National Association of Credit Management (NACM).
The best that can be said about the U.S. economy in Kuehl’s analysis is that things are not get appreciably worse – at least not yet. “The latest data suggest a third month of slump, and it appears the economy is languishing in a state that is not quite in crisis but which isn’t showing energy either,” he added.
From where Kuehl sits, he sees an economy that is essentially stalled and the question he wants answered is whether this is a reaction to something short term or a reflection of some greater underlying trend.
“The majority of the information from the banking sector suggests there is money to borrow. There is available trade credit according to most sources. Businesses are sitting on more cash than they have in a long time and most companies are not having issues paying their bills,” he explained. “The problem is that almost everybody is worried about contingency plans, [so they] are sitting back as they wait for something to change.”
Simply put, the demand needed to really shift the U.S. economy into a higher gear simply isn’t there yet – and nobody is quite sure why, said Kuehl.
“The jobless situation is certainly a worry, but the fact is that 91% of the workforce is employed,” he added. “They [the consumers] are nervous about spending and as long as they stay on the sidelines, the manufacturing community does as well. There are few in the mood to leverage themselves until they have a better sense of what to expect from the government and from the economy as a whole. Everything is more or less in place for expansion, but there has been no trigger thus far and there is plenty to make people more nervous about the future.”
Truckers themselves are already feeling the effects of this uncertainty, too.
“Our tonnage volumes, while positive each month of the second quarter, saw some periodic softness,” noted Bruce Campbell, chairman, President, and CEO of airport-to-airport freight hauler Forward Air Corp. in the carrier’s second quarter earnings statement. “This softness, which we view as a function of the macroeconomic environment, appears to be persisting somewhat into the third quarter.”
“We continue to believe that favorable truckload trends are caused to a greater degree by industry capacity constraints than economic recovery,” noted Werner Enterprises in its second quarter report.
“Capacity in our industry remains constrained by both economic and safety regulatory factors [and] we do not believe that industry fleet growth is occurring, as some carriers are already struggling to finance the replacement truck upgrade due to the large pricing gap between the significantly increased costs of EPA-compliant new trucks compared to the low value of record-old trucks," the company added.
In short, it means we’ve still got quite the economic “soft patch” ahead for trucking to navigate. But the industry is in a far better place now than back just a few short years ago in the Great Recession.
We’ve got that much to be thankful for, at least.