ANAHEIM -- The U.S. economy, struggling to climb out of the worst recession in history, is still improving, albeit slowly, said Bob Costello, chief economist & vice president, American Trucking Associations.
Speaking at TMW Systems’ Transforum user conference in Anaheim, Calif., Tuesday, he said, “I think it’s pretty astounding this economy continues to grow when you think about the shocks it’s taken.” Shocks such as tax increase for everyone at the beginning of the year, tax increases on high earners and the sequester among others.
Costello said the housing recovery, auto production and a domestic oil boom are helping keep the economy on track.
Factors holding freight growth back include the fact that manufacturing is still lagging somewhat. But he noted that the housing industry is rebounding, based on a number of measures: New housing starts are up, as are new home sales, building permits, residential construction spending and existing home sales. Housing is showing “real solid growth,” he said.
Costello also wanted to dispel a number of myths regarding the economy.
Myth 1: Recent increases in home prices and interest rates will derail the housing recovery. While it’s slowing, it’s not going to be derailed by those factors, he said. Total home prices were up 12.4% in July from July a year ago. But the increases have not been even across the country. The largest increases in home prices are in the areas that were hardest hit during the recession. Prices are still off 40% from their peak. And, he agrees that interest rates are up, but if you look back to 1972, mortgage interest rates are “historically very low,” now.
Plus home affordability has remained somewhat level. The median price of a home today is up 41% from 1981 and 1% from 2002. But low interest rates mean the average house payment is actually down 48% from 1982 in inflation adjusted terms. “I’m not too concerned about rising rates and prices slowing the recovery,” he said.
Myth 2: Consumer confidence drives consumer spending. “No doubt I like a confident consumer,” he said. “But at the end of the day, we don’t spend money sole on whether or not we feel confident.” What primarily drives spending is whether people have jobs, are making more money have value in their assets. While inflation adjusted disposable income after taxes barely grew, home values have gone up.
As far as jobs, Costello said it’s best to put more stock in payroll numbers that the unemployment rate. He unemployment rate can drop even if jobs don’t grow because some people will stop looking for work and are no longer considered part of the work force. The labor rate participation rate is at near record lows, he noted, with some of that cyclical in nature and some of it structural in terms of long-term unemployed who drop out of the work force. The unemployment rate is likely to go up as the economy improves because more people will come back into the job market.
Myth 3: The U.S. doesn’t make anything anymore. Costello said that depending upon the measures used, the U.S. is either the first or second largest manufacturing company in the world. People who buy off on this myth are “looking at the wrong numbers,” he said. There are fewer people employed in manufacturing, that is true, but U.S productivity is up. Factory output is on pace to increase 2.3% this year after increasing 4.2% last year and Costello said his forecast calls for a 2.9% increase in 2014. “We think that this decade will be the highest increase in factory output we’ve seen.”
Myth 4: The U.S. imports most of our energy. “There are remarkable trends going on,” he said. “North America is on its way to being energy independent.” That is a result of a combination of more fuel efficiency and more production, due to fracking and natural gas production. Costello said crude and diesel prices aren’t expected to plummet because of increased product since a lot of that is set for import. For the first time since 1949, the U.S. is now a net fuel exporter he said. By 2020, the U.S. is projected to be the largest oil producer globally, currently it’s number 3.
This energy boom has huge implications for trucking, he said, since a lot of the production is coming from fracking, which uses large amounts of sand, chemicals and water -- all things that have to be trucked onto the oil sites.
Myth 5: Inflation is a concern. Costello said inflation will not be a concern this year or next. “To get inflation, you have to have wage inflation and we don’t have wage inflation, real disposable income is basically flat this year.” When wages do go up, inflation may become a problem. He doesn’t think that will happen for a couple of years.
Myth 6: Not raising the debt ceiling will solve our government spending problem. That doesn’t make sense, he said, noting that Europe has gone through extreme measures in order to avoid defaulting on their debts while the congress seems set to default on purpose. That will “take us back to recession,” he said and would be a recovery-ending event.
Assuming there is no default, or even going to the brink as the government did in 2011, Costello said his forecast calls for GDP growth this year to be 1.5% and 2.7% in 2014.
Things that could alter this forecast, he said, were for Congress to not increase the debt ceiling or go into a government shutdown.