Due to recent budget cuts…the light at the end of the tunnel has been turned off
March 30, 2009
March 30, 2009
After reading my most recent blog on the state of our economy, an industry supplier friend joked that would be a fitting way to describe my rather pessimistic outlook. Others wrote in saying I was overly pessimistic.
Could they be right? Is there good reason to believe we are finally able to see light at the end of the tunnel when it comes to the economic downturn? There’s much at stake for both transportation providers and those purchasing their services if we can. Transportation is a leading indicator of future economic activity. Freight starts to move, and the fortunes of transportation providers start to improve, about six months before the economy does as businesses anticipating improved sales start to rebuild their inventories. And an uptick in freight volumes signals the beginning of the end of excess capacity and depressed transportation rates.
Is this where we are right now? If the current recession in the US, which of course has an incredible impact on Canada since almost 80% of our exports are absorbed by the US market , lasts into April — as it almost surely will — it will go on record as the longest in the postwar era. The 1981-82 and 1973-75 recessions each lasted 16 months.
I certainly didn’t think we were about to see the light at the end of the tunnel when I wrote a blog on the subject just a few weeks ago. I started the month with a pessimistic blog on the North American economy basically stating that any light at the end of the tunnel was basically a mirage. For example, I argued that hopes of a recovery based on the reports of US truck tonnage showing a spike in January were nothing more than wishful thinking. US truck tonnage did spike 3% in January but the month looked so good only because December’s numbers were so awful. Put the spike in perspective, I pointed out, and you see why there’s no reason to be optimistic: compared to the previous January, the month was down 10.8%; and the month’s tonnage was the second lowest since October 2002.
Well, a month later, I’m not about to say I’ve completely changed my mind, but let’s just say I’m willing to be persuaded. What happened? The combination of finding optimism in quarters where I did not expect to find it and an upturn in the economic indices I normally keep tabs on.
Every year at this time I have the privilege of speaking to the leaders of some of the nation’s best managed transportation companies for our annual Award Winning Suppliers special in Canadian Transportation & Logistics. I fully expected pessimistic responses to my probing about current economic conditions and forecasts and I did get some. But I was surprised to find some degree of optimism that things could start to turn around as quickly as the second quarter.
I then started seeing some key indices showing notable improvement. The Baltic Dry Index is an assessment of the price of moving raw materials on cargo ships around the world. It’s an important indicator because raw materials start moving when infrastructure is being built and manufacturers expect to be producing products to meet new demand.
When the world economy is fading, shipping gets cheaper. When growth returns, shipping costs more. I made much of the fact that the Index had sunk to a 22-year low in December in my previous blog. But since then it has shown improvement, which would indicate we may have already hit rock bottom and things will start to pick up from here.
Also the US Economic Cycle Research Institute’s Weekly Leading Index — a composite of daily and weekly data on economic drivers of the business cycle, including corporate profits and housing activity – has enjoyed some stabilization since the start of the year.
And then there’s the big one: consumer spending, which constitutes about 70% of the US economy. Consumer spending rose 0.6% in January, after a 1% decrease in December and a 0.8% drop in November.
So does all this mean we can finally get optimistic about a turnaround? Perhaps. A couple more months of improving indices would be better but, as I mentioned earlier, I’m ready to be convinced.
With more than 25 years of experience reporting on transportation issues, Lou is one of the more recognizable personalities in the industry. An award-winning writer well known for his insightful writing and meticulous market analysis, he is a leading authority on industry trends and statistics. All posts by Lou Smyrlis