Fleet Management

Analysis: Economic Growth Springs Back to Life

November 2016, TruckingInfo.com - WebXclusive

by Evan Lockridge, Business Contributing Editor - Also by this author

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In a scene in the movie Crimson Tide, the Navy submarine U.S.S. Alabama has lost power and continues sinking. As it drifts deeper and deeper, with crew members feeling the end of their lives in sight, suddenly propulsion is restored. That’s when one crew member says, “We’re living, gentleman. We’re living.”

Well, ladies and gentlemen, in case you haven’t been keeping up with current economic events, we are indeed living.

Just look at what happened with the nation’s gross domestic product growth in the third quarter of the year. This widest measure of economic health expanded at its best rate in two years, a 2.9% annual pace, compared to barely over 1% in the first half of the year and better than a 2.5% improvement forecast by a panel of economists.

While it’s not time to break out the champagne and celebrate, it’s certainly reason to at least breath a sigh of relief after feelings of uncertainty that have plagued anyone who watches the economy.

This surge was not unexpected, but the question is, will it continue?

At the American Trucking Associations Management Conference & Exhibition in Las Vegas in October, during a session hosted by ATA Chief Economist Bob Costello, guest Diane Swonk, analyst with DS Economics, said the economy was at a “turning point,” explaining business conditions were expected to rebound from earlier “subpar growth.”

As she predicted, consumers in the third quarter continued to spend. Also, job growth has been fairly strong, although Swonk believes there are still people sitting on the sidelines, meaning it could grow more and push the economy into an even higher gear. Others, such as Costello, expect job growth to decelerate at some point.

Separately, in discussing the third quarter GDP results, RBC Economist Nathan Janzen noted that some areas of the economy that had been pulling down overall economic growth this year looked better in the third quarter, at least relatively speaking. For example, the pull-back in activity in the oil and gas sector appears to be bottoming out, which should support stronger business investment.

While numbers on fourth quarter performance were just starting to roll in at press time, what little was available was at least encouraging. The Flash U.S. Manufacturing Purchasing Managers’ Index from the financial information services provider IHS Markit rebounded in October from a three-month low in September. With the fastest rate of improvement since October 2015, the report signaled a solid upturn in overall business conditions, with manufacturing production increasing for five months straight.

There is still reason for at least caution. The third quarter bump in the GDP only brings year to date growth to an average of 1.7%, down from around 2% in the third quarter of 2015.

Also, as pointed out last month in this space, Daniel Meckstroth, chief economist with the industry group the Manufacturers Alliance for Productivity and Innovation, told those attending the FTR Conference in September to expect both a recovery for the economy and freight in the fourth quarter – but not to expect a huge boom.

Add to this the lingering question of whether the Federal Reserve will hike interest rates for the second time in 10 years before 2016 is out. These latest economic numbers certainly make it more likely. But even it does, any hike will be small and any further increases will most likely be slow and unlikely to sink the economy.

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