FTR: Risks Could Impact Economic Recovery in U.S.

Although the U.S. economic recovery is likely on track, there are several risks out there that could negatively impact the recovery, according to FTR Associates' June North American Commercial Truck and Trailer Outlook.

Due to risks such as the impact of Europe's economic crisis, the decline in the U.S. stock market, and high unemployment numbers, FTR's forecast was somewhat conservative in this outlook.

According to the report, if the economy weakens and GDP falls to 2 percent or lower, demand for Class 8 vehicles could drop as much as 20,000 units below its current forecast for 2010, although FTR believes that such a large decline is unlikely given the recent uptick in net orders posted in June. If things pick up and these factors have less of an effect, demand could rise with upside potential of another 12,000 units above its base forecast reaching nearly 150,000 units for 2010.

"We did raise our forecast marginally to reflect the current order activity; however, we do continue to be conservative because we look at a big picture which tells us that there are real risks to too much optimism," said Eric Starks, president of FTR.

The Risks

According to the FTR report, Europe's financial crisis is having a negative impact on the domestic U.S. economy. Unemployment is still high, and the stock market has been weakening, partly due to fears about Europe's troubles.

While FTR says the problems in Europe are not big enough to halt the recovery in the U.S., Europe will likely enter a recession, and this can have serious impacts on the U.S.'s economic state.

"Just how badly the U.S. economy is damaged will depend largely on the stock market," FTR said.

The report points out that the correction is only at 15 percent so far, but if stocks weaken any further, this could have serious effects on both consumer and business confidence. Higher income groups would be hit the hardest if the market drops further, FTR said.

Another factor that could affect the U.S. recovery is the effect of the stronger dollar on U.S. exports, although FTR says the impact should be minimal. The U.S. depends on Europe for only a fifth of its exports. In addition, exports account for less than a tenth of U.S. GDP.

FTR says the U.S. needs to focus on its own debt crisis and convince global investors that the country can meet its fiscal responsibilities.

"The U.S. is more capable of reducing debt by economic growth and job generation than most European countries," FTR said.