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Leading economist predicts US will avoid recession…for now

LAS VEGAS, Nev. - It seems appropriate the Heavy-Duty Dialogue, a staple of Heavy-Duty Aftermarket Week, was held in the gambling Mecca of the world, because there was a lot of discussion this year ab...

LAS VEGAS, Nev. – It seems appropriate the Heavy-Duty Dialogue, a staple of Heavy-Duty Aftermarket Week, was held in the gambling Mecca of the world, because there was a lot of discussion this year about the odds of a US recession.

With the US economy teetering on the brink of recession, it’s no surprise it was a hot topic at this year’s event, which brings together members of the heavy-duty aftermarket industry across North America. Martin Regalia, economist with the US Chamber of Commerce, a highly-respected prognosticator and self-proclaimed “optimist”, shared some insight during the event.

“I would suggest there’s probably going to be something like a 40-45% chance that we don’t get through (without a recession), and a 55% chance that we do, it’s going to be that close,” Regalia told delegates. “The odds of a recession are about nine times higher than they are normally. You see an economy that is not hitting on all cylinders, that has significant weak spots, that has a few areas of strength and if those areas of strength hold up, we’re going to be alright.”

However, he said industries that are connected to the housing market will not escape unscathed, and that includes flatdeck haulers. It was suggested at this year’s event that there have already been eight million truckloads that have been eliminated due to the housing crash.

“When an economy is that weak and there are sectors within that economy that are downright depressed such as the housing sector, any of you who are attached to that sector are not going to find much solace that we avoided a technical recession,” Regalia explained. “You’re going to be reeling if you’re in that sector probably for the next six to eight months at least, then a gradual improvement is going to occur at the end of the year and into 2009.”

Despite that, Regalia said “There’s a light at the end of the tunnel that isn’t attached to an oncoming train but I think it’s going to be very, very tough through the interim period.”

Surprisingly, Regalia said his optimism is fueled in part by US freight volumes and rail car loadings. While they are relatively flat, the economist pointed out “We have not seen anything in this data that smacks of the last recession.”

He explained “Last recession we saw a big drop-off followed by a plateau. We haven’t really had that this time around. We see the numbers up and down, nothing that is a definitive trend and I think this is indicative of an economy that is hard to gauge. If we had seen a very sharp decline, I would be much more likely to step on the recession bandwagon, but when you don’t see that decline, it’s easier to be a little bit more optimistic.”

Regalia pointed out consumption is what drives the US economy, and he thinks an expected stimulus package from the Bush Administration may be enough to keep consumption levels growing.

However, despite his best attempts to remain optimistic about the US economy in the short-term, Regalia said he has grave concerns about the “perfect storm” he sees brewing in 2010 and beyond. Regalia said an infrastructure deficit that desperately requires funding, combined with an aging population that will drain social security programs and the expiration of $3 trillion in tax cuts between 2010 and 2014 could spark “an economic downturn that would rival the last ‘real’ recession in the early 80s.”

“The next Administration is going to face a daunting task to handle those,” Regalia predicted. “If you go into that with a very strong, vibrant economy, at least you get a running start. If you limp into it with a weak economy as it looks like we will, then I can see those problems coalescing into the perfect storm. Near-term, I see us getting through…when I look beyond that to 2010 and beyond, I see these other problems that if we don’t address them, they will jump up and exert themselves.”

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