All of a sudden, after months of one depressing economic announcement after another, there seems to be a heck of a lot of good news about
the Canadian, US and global economies. Do the executives of the many beleaguered trucking firms across the country finally have reason to hope? Can we (dare we) trust in the economists’ predictions? It’s not like they haven’t been wrong before.
We recently discovered the global economy can be just as synchronous on its way up as it was on its way down. For example, the recently published TD Bank Financial Group’s global quarterly economic forecast was enthused to point out that relative to previous forecasts, the economic rebound is coming in about one quarter earlier, is twice as strong, and potentially will be sustained twice as long if the leading indicators are correct. Asia, Europe and even the US are all on the rebound it seems.
Canada’s economy grew for the first time in 11 months in June, an encouraging signal that the country’s first recession in almost two decades is over. True, the June growth of 0.1% was less than the consensus economist forecast of 0.2%. And Statistics Canada did revise the first-quarter retreat from the previously reported 5.4% to 6.1%, making it the worst quarterly contraction on record since 1961 and muting the June numbers somewhat because they relate to an even lower starting point than initially thought. But after so many straight months of bad news, we’ll take 0.1% growth, thank you very much.
TD Bank Financial Group was optimistic that the June uptick in business was one of several indicators of the Canadian economy showing signs of a budding recovery. Of particular interest to transborder carriers who have taken a beating the last couple of years, is the boost in Canadian exports during June and July and the forecast that they will grow a sharp 25% in the third quarter, marking the first time in two years that exports will contribute to the country’s economic growth.
Canadian firms also imported 11% more machinery and equipment in July, which TD believes will lead to an annualized increase in business investment in these goods for the third quarter.
David Newman, senior vice-president with National Bank Financial, told transportation professionals attending the recent 23rd annual Transportation Conference in Toronto that he’s been looking for “absolute and sequential increases” in economic indicators that historically bode well for increased freight activity and he’s been finding them of late. For example, the ISM New Orders Index, which measures new manufacturing orders, is looking better and better. He figures that by year end, once any lingering inventory has cleared, we will be in the sweet spot where we will start to see freight grow. No bull market mind you, but a definite sign the worst is behind us and there is modest growth to look forward to.
Of course, 73% of our exports of goods and commodities remain US-bound, so the Canadian recovery will be greatly impacted by the pace of the recovery in the US. But economists believe that market is also starting to look much better. The very sick patient with an unclear prognosis that was the US economy at this point last year, is up and starting to walk around. The recession erased an incredible 3.9% of US real GDP, but economists are expecting our largest trading partner to have rebounded with 4% (annualized) growth through the third quarter this year.
It all sounds positive, but there a few things that should be checking our optimism. The global banking sector may be on the mend, but it’s still battered enough to act as a drag on economic growth. It’s doubtful banks have recovered enough to adequately keep up with the historical lending demand from companies looking to grow during the economic recovery. And we already know what banks think of trucking companies. Getting access to the capital necessary to boost growth through mergers and acquisitions may remain difficult for at least another year. Further appreciation of the dollar against the US greenback through 2010 will challenge our ability to sell goods to the US, which will dampen transborder shipment growth. And the consumer on both sides of the border is likely to remain reticent to return to his pre-recession spending as long as unemployment remains high.
The end result will likely be that the economic recovery, beyond perhaps a brief burst at the end of this year, will be quite gradual compared to the past. TD Bank Financial predicts 2.5% GDP growth in 2010 before we get to 3.1% in 2011. Unfortunately, growth of at least 3.0% is required to fully engage the trucking industry.
“The recovery is for real and worries about a double-dip will likely prove unfounded.”
–Craig Alexander Deputy chief economist TB Bank Financial Group
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