The turmoil roiling top investment banks is colossal enough to further tamp down the anemic U.S. economy. The upshot for trucking is it will take even longer to get relief from tight credit-- not to mention to see any rise in the rate of consumer and business spending significant enough to boost the economy.
The Wall Street mess is so big it shoved Hurricane Ike right out of the headlines and it isn’t even over yet. There was hope that because U.S. consumer prices dropped last month for the first time in nearly two years—driven in large part by the sudden drop in oil prices— the Federal Reserve would cut interest rates again. But that hope was dashed this afternoon when the Fed announced it would hold interest rates steady and, what’s more, appeared to signal that rate cuts are not in the offing, according to The Wall Street Journal.
But even if lower interest rates could be offered, that doesn’t mean loans would be, points out analyst Chris Brady, president of Commercial Motor Vehicle Consulting. “It doesn’t matter if interest rates go to zero,” Brady told FleetOwner. “The banks are not ready to lend. The $70 billion the Fed just pumped into the economy fosters liquidity—it helps keep things going as they were” but it doesn’t necessarily encourage new lending. “The fact remains a lot of large banks still have lots of problem loans” to work out of their portfolios before they will free up more credit.
Brady said the main direct concern from this for truck fleets is whether businesses with good credit will be able to borrow—which of course would impact both new and used truck sales. “It’s a far cry from when the banks were giving loans to anyone.”
The rapid falloff in the price of oil is welcome relief for truck fleets as well as consumers. “The steep drop in crude oil prices should improve operating margins for fleets as fuel surcharges do not keep up with the cost of diesel,” said Brady.
“As expectations for slowing global growth have caused crude oil prices to
drop recently,” observed Longbow Research analyst Lee Klaskow, “diesel has also declined for the ninth straight week, and has created a near-term tailwind for truckers due to the one-to-two week lag in their fuel-surcharge recovery programs.”
“Lower gas prices alone will not drive a rebound in consumer spending,” Brady cautioned. “Heavy debt, inflation and a soft labor market continue to constrain consumer spending.”
Klaskow pointed out that along with lower fuel costs, “the truckload industry has been
benefiting from excess capacity exiting the market. This should help provide
firmer pricing, in our view. However, this could now be delayed with the recent further deterioration in the macro economy.”
According to Brady, construction “remains in a downturn and will be hampered by sluggish consumer and business spending for some time to come. The financial crisis has only exacerbated the situation [for the economy as a whole].”