Fleet Management

Economists Say Better Days Ahead, But Growth to be Moderate

January 24, 2010

SHARING TOOLS        | Print Subscribe
The worst is behind us, but economic recovery will likely be slower than we would like, according to two economic analysts speaking at last week's Heavy Duty Dialogue, a one-day business conference for heavy-duty suppliers.


Bill Strauss, a senior economist with the Chicago Federal Reserve, explained that the economy, as measured by gross domestic product, expanded by 2.2 percent in the third quarter. We should see "pretty significant" growth going forward, he said, but not as much as you might think, thanks to the financial crisis and continuing consumer reluctance to spend.

"We're still getting reports that some businesses, especially smaller businesses, are finding financing to be a challenge," Strauss said. "Certainly consumers are. Secondly, we're seeing consumers have taken on a new religion when it comes to savings."

Personal savings has increased sharply, he said. While long-term this is a good thing, short-term, it will slow down the recovery. "Consumer spending represents two thirds of our economy, and if they are saving more, they are spending less." The stock market, he noted, has done "incredibly well" since last March, but it's still well below previous levels.

BLUE CHIP NUMBERS

Strauss pointed to numbers from the Blue Chip panel, a highly respected monthly survey of America's top business economists. This panel, he said, expects a pretty good growth rate of around 4 percent for fourth quarter 2009, but more of a moderate pace going forward for 2010, around 2.9 percent for the year, and 3.2 percent for 2011 - "half of the type of growth levels you once would have anticipated" coming out of such a deep recession.

The good news, he said, is that this more moderate growth should put us at less of a risk for a "double dip" recession.

One of the big concerns coming out of this recession, he said, is the loss of jobs. Unemployment rates are expected to peak at about 10.2 percent. The change in payroll employment has been a much worse drop compared to previous recessions; employment has fallen by more than 7.2 million jobs since December of 2007.

"We cannot go much further, in my opinion," Strauss said. "The unemployment rate is forecast to peak at 10.2 percent early this year and begin to edge lower, but it is still expected to be around 9 percent at the end of 2011. We are not comfortable with unemployment rates at this level."

MANUFACTURING OUTLOOK

Manufacturing, or industrial production, is helping to lead the economy out of the recession, Strauss said. Industrial output fell quite sharply during the recession. "The downturn in manufacturing was the deepest, and close to the longest, decline in the past 50 years." But industrial production has risen strongly for five months in a row, starting in July, and manufacturing industry has recovered nearly 24 percent of that drop in six months. Industrial production is forecast to rise at a solid pace through the end of 2011, over 4 percent this year according to the Blue Chip panel, and Strauss said he's even more optimistic.

Eli Lustgarten, senior vice president at Longbow Securities, noted that early signposts of the end of the recession have been met, such as housing data, the Purchasing Managers Index, and stabilizing commodity prices and equity markets. He said the economic recovery has largely been born of stimulus programs. "Whether you call it a good program or not, massive deficit spending works," he said, and nations around the world, not just the U.S., have been throwing money at solving the global economic problems.

Lustgarten said despite the improvement in industrial and manufacturing numbers reported by Strauss, we're looking at a slow industrial recovery in 2010. "We have dug a deep hole to climb out of," he said, nothing that manufacturing capacity utilization is well down from normal, so there won't be much need for capital spending this year. He cited Eaton as an example: the company's normal capital spending is around $600 million. In 2009, they spent $200 million. Even if they're up 50 percent in 2010, that's $300 million - still half of where it should be.

THE TRUCK MARKET

For the heavy duty industry, Lustgarten predicted that the market for trucks will likely return to more normal levels of demand as early as 2011, but said prior peak levels of over 300,000 units are unlikely.

Rising industrial production is clearly meaning improvement for the trucking sector, Lustgarten said, with freight volumes starting to go up. One of the problems, however, is tremendous excess capacity. In a normal year, average truck fleet utilization is between 85 and 90 percent. In 2009, it bottomed out at about 72 percent, improving in the second half of the year to about 74 percent.

"But we're going to get past that," he said.

Lustgarten predicted Class 8 NAFTA truck production for 2010 would be about 135,000, rising to 195,000 for 2011 and 250,000 for 2012, "assuming the government doesn't get in the way with policy."


Comment On This Story

Name:  
Email:  
Comment: (Maximum 2000 characters)  
Leave this field empty:
* Please note that every comment is moderated.

Newsletter

We offer e-newsletters that deliver targeted news and information for the entire fleet industry.

GotQuestions?

ELDs and Telematics

sponsored by
sponsor logo

Scott Sutarik from Geotab will answer your questions and challenges

View All

Sleeper Cab Power

Steve Carlson from Xantrex will answer your questions and challenges

View All