The Ontario Trucking Association's latest Business Pulse Survey of its members shows fleets remain divided about their economic expectations. About a third are expressing optimism things are about to ...
The Ontario Trucking Association’s latest Business Pulse Survey of its members shows fleets remain divided about their economic expectations. About a third are expressing optimism things are about to get better while virtually the same amount remain pessimistic. Is such uncertainty warranted, particularly in view of the fact that more than half also felt the Canadian economy had bottomed out?
Let’s first tackle the belief that the Canadian economy has bottomed out. At our second Profitability Seminar this year, hosted in coordination with Dan Goodwill and Associates, Carlos Gomez, senior economist with Scotiabank, was able to outline several economic indicators showing the much hoped for bottoming out was at hand.
Car manufacturing was basically frozen after inventories grew to dangerous levels. In a healthy market, cars sit on lots for about, on average, 65 days. Yet by late 2008 they were sitting on lots for up to 95 days.
That caused car manufacturers to slash production from 13-14 million units to only about 5-6 million at an annual rate in the first quarter. The good news is that inventories have started to come down once again. They’re still a little bit higher than normal, but they’re down to a 69- day supply, Gomez said.
Of course, it was the collapse of the US housing market that started the economy rolling the wrong way. By 2006, housing affordability had reached dangerous levels. But the combination of falling house prices with very low interest rates means the pendulum has swung the other way with affordability now at a record level in the US. The main problem now is that there is still a very large supply of houses on the market in the US.
Other indicators pointing in the right direction include the Baltic Dry Index, which measures the cost of shipping goods throughout the world. From mid-08 onward, that index plunged but is now showing some stability.
The inventory-to-sales ratio for manufacturing index and the Purchasing Manager’s Index are also pointing towards improving conditions as is Scotiabank’s own index measuring financial conditions overall. So the economy has bottomed out and the usual strong recovery is about to set in -the pessimists need to lighten up, right? Well, not exactly.
Gomez explained that the recovery won’t start till 2010 and it will be a slow one; rather than the usual 3%-5% growth, he expects 2%- 2.5% growth next year.
Part of the reason the recovery won’t come til 2010 is because the largest segment of the stimulant packages that most major countries have put in place goes into effect in 2010.
And hold on to your seats -it’s going to remain choppy til then. That’s a reality the American Trucking Associations had to acknowledge when US truck tonnage dropped significantly in June, leading the ATA’s economist Bob Costello to concede: “While I am hopeful that the worst is behind us, I just don’t see anything on the economic horizon that suggests freight tonnage is about to rise significantly or consistently.” •
Truck News is Canada's leading trucking newspaper - news and information for trucking companies, owner/operators, truck drivers and logistics professionals working in the Canadian trucking industry. All posts by Truck News