“The ongoing struggle to maintain growth in a slowly recovering economy, coupled with a host of new challenges and issues, has resulted in the insurance industry adopting a ‘bearish’ attitude toward economic growth.” –from a recent Deloitte LLP report entitled Insurance Industry Outlook: High Hurdles Loom in 2011 & Beyond
The news on the economic front is becoming decidedly more negative as high oil prices persist and other metrics indicate the recovery is becoming increasingly more “fragile” – certainly not the sort of things truckers want to hear right now.
Take the Ceridian-UCLA Pulse of Commerce Index (PCI) data released for February this week. Touted as a “real-time” measure of the flow of goods to U.S. factories, retailers and consumers, the PCI slumped 1.5% last month after a 0.3% loss in January – effectively wiping out the strong 1.8% gain posted in December 2010.
“The PCI performance in the first two months of this year suggests weakness in some parts of the economy,” said Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast, in a statement. “Nevertheless, our outlook for 2011 is for continued economic recovery – we expect U.S. GDP [gross domestic product] to grow at the historically 'normal' rate of 3%, accompanied by a persistent level of high unemployment.”
He noted that the relative weakness in the PCI over the first two months of this year suggests that GDP for the first quarter will come in below consensus, near the lower end of the range of current forecasts that range between 2% and 5.5%.
For the year, Leamer said the index continues to suggest GDP growth sufficient to drive continued modest growth in employment but not back to the peak levels attained in late 2007.
“February’s spike in diesel fuel prices to well over $3 a gallon likely did not drive the weakness in the PCI this month,” added Craig Manson, senior vp and index expert for Ceridian, the firm that provides the raw diesel fuel purchasing data that goes into crafting the PCI.
“However, if the trend persists, higher prices will likely have an impact in the coming months as consumers are robbed of spending power,” Manson pointed out. “As a leading indicator for the goods producing segment of the economy, the PCI is sensitive to this dynamic and should provide early indications of direction and magnitude as higher fuel prices impact the broader economy.”
[A week or so ago, Olli Rehn, member of the European Commission in charge of economic and monetary affairs, provided a fairly pessimistic Interim Economic Forecast for 2011, based in large part on investor “uncertainty” that’s occurring in reaction to the civil war in Libya and unrest in other parts of the Middle East and North Africa.]
Global consulting firm Deloitte LLP is also finding that its recent poll of larger insurance firms is revealing a more negative economic outlook compared to previous surveys.
Deloitte’s report, Insurance Industry Outlook: High Hurdles Loom in 2011 & Beyond, said that insurers claim they can't wait for the economy to rebound.
“It could take years for a full economic recovery to be achieved, making organic growth and profitability problematic, particularly for carriers that merely circle the wagons and try to maintain the status quo rather than experiment and innovate,” Deloitte’s poll found.
“Overall, insurers remain bearish about the prospects for rapid economic growth in the next year or two,” said Sam Friedman, who leads Deloitte's insurance sector research. “There are signs of a recovery slowly emerging, albeit with setbacks expected along the way.”
You can sum all this up with a single word: bummer.