LAS VEGAS – According to the numbers, The U.S. economy escaped the so-called Great Recession 18 months ago. So, why doesn’t it feel like it?

Bill Strauss, chief economist of the Chicago Federal Reserve, and other market thinkers spent an afternoon answering questions just like that one at the Heavy duty Dialogue in Las Vegas yesterday.

U.S. GDP grew at a decent clip of 3.2 percent in 2010, but, adds Strauss, it’s nowhere near “normal.”

“So, technically, the words we would use is that the economy still stinks,” Strauss said, inciting some laughter.

He told the gathering of truck and component manufacturers that the mood in the country is still down despite the up tick in GDP because 62 percent of the growth is buried in rebuilding inventories, which doesn’t necessarily get translated into consumer sales.

“This is truly the story of the tail wagging the dog,” he said.

Inventories, though, are an indicator of true growth in manufacturing (growing at 7.8 percent), which has undoubtedly driven the modest recovery in truck freight.

Eric Starks, president of FTR Associates, says truckers will accept growth anyway they can get it, but “it doesn’t get us back to equilibrium.”

While projects for 2011 are quite good, he says freight has leveled off in the last six months. “Freight isn’t flying right now.”  

Chasing Cash: There’s no doubt 2011 will be
a good year for trucking. Just mind the pitfalls.

If you follow truck tonnage regression versus expansion, trucking has been a precursor for nearly every economic downturn and upturn, said Donald Broughton, senior research analyst at Avondale Partners.

Trucking, and therefore the economy, continue to head in the right trajectory, but there are a few pitfalls, says the outspoken Broughton, who’s as entertaining as an economist gets.

Broughton called out embattled YRC as “the ultimate zombie trucker,” predicting the LTL giant will fall despite all the wrangling by creditors and the Teamsters union to keep it above water.

“People say, ‘oh Broughton, you’ve been saying that they’re failing forever.’ Yeah, they have been failing forever.”

A closure of YRC would surly purge a chunk of capacity out of the LTL sector. Just how much, though, is too thorny too predict.

Typically during a period of high trucking failures, remaining players move in and acquire equipment to gain marketshare. In this recession, however, failures took 12 percent of capacity off the highway, says Broughton. But rather than fill that vacuum, other fleets clipped their own fleet sizes, bringing the net capacity reduction to 15 percent.

Starks agrees that fleets are not looking to add capacity right now. “All they’re doing is replacing equipment,” he says, adding that it’s predominately the very large North American carriers that have done so.

“Small and medium guys are not participating in this recovery … There’s been a little bit of thawing on the ability of them having access to capital, but not where it needs to be.”

The capacity crunch will be further exasperated once CSA enforcement is in full swing and changes to the hours-of service rules (driving hours will likely be reduced to 10 hours) take effect.

Finding professional drivers will be the “single biggest factor between company A and company B” going forward, says Broughton.

While not as drastic as some feared, the hours-of-service changes could result in a productivity drop of 6 percent, meaning another 150,000 drivers would be required to move the same amount of freight, says Starks, who as a result foresees a trend towards more “drop and hook” freight, which will lead to more trailer utilization.

The effect of CSA on capacity is two-pronged, says Starks. Not only will the more stringent rules squeeze drivers out of the industry but also carriers will more cautiously control fleet expansion in order to maintain a better score in CSA.

One area where Starks and Broughton slightly disagree on is rates.

The latter agrees margins will improve with tight capacity, but projections of 15 percent in the next couple of years are overstated.

It’s true that CSA and hours of service will affect asset utilization, but the costs of compliance with those and other programs and the general cost increases of new technology means “it’ll take an extraordinary amount of pricing to keep things even flat,” Broughton said.

Starks later qualified his rate increase forecasts.

“Is that all going to be profit? No. We’re going to see costs go up 10 percent or more, so profit margins are going to continue to get squeezed.”