A U.S. Manufacturing Renaissance in 2014 to 2016 will Boost Freight Volumes
June 16, 2013
June 16, 2013
Every year at this time, RBC Dominion Securities Inc. assembles a group of investors and invites Jim Allworth, Co-Chair and Portfolio Strategist to address the group. This year’s session was particularly noteworthy in that Mr. Allworth painted a rather optimistic picture of the medium term prospects for the US and Canadian economies. The Saturday Globe & Mail newspaper also carried a feature article with the headline “A Recovery in Red” as did an April Time magazine feature (How ‘Made in the USA’ is Making a Comeback). These forecasts have significant implications for freight volumes during this three year period. Here is some of what they had to say.
The Great Recession has produced four years of below normal economic growth. The United States, the world’s largest importer and largest economy has been growing at 2 percent per annum as compared to its normal 4 percent. This has pulled everybody down. Mr. Allworth cited a recent economic report of the US Congressional Office, a non-partisan group of economists, with a reliable track record, that is now predicting economic growth of 3 – 4 percent during the period 2014 to 2016. This growth is being driven by several factors.
The countries with low wage levels (e.g. China) boosted wages last year. This is making the US more attractive from a cost perspective and shifting some manufacturing back to the United States. The process of extracting shale oil and gas through fracking is having a very positive impact on the supply of energy in the United States. As a result of technological improvements, the US is using 2 million less barrels per day than it did a few years ago. Through fracking, the country is producing 2.5 million barrels per day of new energy. In total, this is a swing of 4.5 million barrels per day. The US is expected to be energy independent within 6 to 10 years.
This year housing starts are expected to reach 1.5 million units compared to a level of 700,000 to 800,000 over the past four years. New houses mean new appliances, carpets, furniture and other products. American companies are sitting on hordes of cash and are looking for positive signs that it is time to re-invest. Consumer optimism and improving jobs numbers are signs that the economy is on the mend and it is time to get back in.
In a recent Bloomberg article, former President Bill Clinton wrote that manufacturing is critical to the country’s ability to “build a balanced economy with good jobs.” It accounts for over 80 percent of our exports and 90 percent of our patents and R&D spending according to the U.S. International Trade Commission and the Department of Commerce. As such, he said, it’s a job multiplier—every new manufacturing job creates an additional 4.6 jobs to support it. He said for high tech manufacturing jobs, the supporting jobs rise to 16. Of course, more jobs = more purchases = more freight.
While the GDP growth numbers have not looked too robust this year, they have been dampened by the Sequester, the reduction in government spending. The elimination of the Sequester and an uptick in private sector jobs should propel the growth number to higher levels than we have seen for several years. Mr. Allworth suggested that the Canadian economy will speed up to keep pace with the US economy. This time it will be a growth in manufacturing jobs in Eastern Canada as compared to energy related jobs in the west. He also predicted that the major European economies will begin to perform better. He cited the economies of Germany, France and Italy as countries that will improve their economies in the coming years.
Of course, an economic improvement in the US will drive changes in other areas. Mr. Allworth expects to see the American dollar strengthen against the Canadian dollar. He is predicting a 0.92 – 0.93 dollar within a few months. The quantitative easing program will diminish. Interest rate hikes will create inflationary pressures.
If these rosy forecasts are accurate, this would provide a much needed lift to the freight industry. As we move into the second half of 2013, it will be interesting to see if other economist share the positive outlooks in the three publications cited.
The state of the American and Canadian economies will the focus of the opening track at the October 16 2013 Surface Transportation Summit (www.surfacetransportationsummit.com). Book soon to take advantage of the “early bird” rates.
Dan Goodwill, President, Dan Goodwill & Associates Inc. has over 30 years of experience in the logistics and transportation industries in both Canada and the United States. Dan has held executive level positions in the industry including President of Yellow Transportation’s Canada division, President of Clarke Logistics (Canada’s largest Intermodal Marketing Company), General Manager of the Railfast division of TNT and Vice President, Sales & Marketing, TNT Overland Express.
Goodwill is currently a consultant to manufacturers and distributors, helping them improve their transportation processes and save millions of dollars in freight spend. Mr. Goodwill also provides consulting services to transportation and logistics organizations to help them improve their profitability. All posts by Dan Goodwill