BLOOMINGTON, Ind. — The US economy is expected to continue its upward trajectory through 2015, eventually meeting its full potential before growth stalls in 2016.
That was the upbeat outlook from Bill Witte, lead economist with trucking industry forecaster FTR, during a State of Freight Webinar titled The Economy in 2015.
Witte said the economic recovery that began in mid-2009 has occurred in two stages. The first stage, mid-09 to mid-2013, was helped along by federal stimulus and characterized by slow growth of about 2% on a year-over-year basis. Employment rates through that period improved gradually, but reflected the departure of many job-seekers from the workplace.
“A lot of the decrease in unemployment during this period was due to people dropping out of the labour force and labour participation rates fell,” Witte said. “We had lower unemployment but it was not a desirable pattern.”
The second stage of the recovery, from mid-2013 to the present, has seen stronger growth, including in the workplace.
“The unemployment rate continued to decline, but the participation rate hasn’t been declining,” Witte explained. “So the drop in unemployment is because people are moving into the employed category and not simply leaving the labour force altogether.”
Of course, gainfully employed citizens have more money to spend on goods and services, which in turn benefits freight volumes. Witte said there have been four leading factors driving the economic recovery: consumption; business development; government spending; and housing.
The biggest disappointment of all of them, to date, has been housing, Witte said.
“Housing has been pretty flat over the past year,” he explained. “We have four cylinders here and three of them are firing pretty good and the other is sputtering at best.”
Looking ahead to 2015, Witte expects the unemployment rate to continue to decline and for consumption to continue to increase. Consumption grew at a rate of 2.5% during the recent recovery period and Witte projects that will increase to about 3.2% in 2015. Housing represents the real opportunity for growth. It grew at just 1.6% over the past five quarters but Witte is expecting housing starts to increase 8% this year. Collectively, he said these factors should contribute to economic growth of 3.5% in 2015.
Witte admitted oil prices are difficult to predict, but projected prices will remain around US$60 per barrel through the first and second quarters before climbing.
Short-term interest rates in the US are likely due for an increase, Witte said, however a rise to 1% by the end of 2015 shouldn’t have “huge implications for the economy.”
If there was anything in Witte’s presentation to temper the optimism, it’s that US economic growth will be driven more by the service sector than the goods-producing sector – a reversal of the trend through the recovery thus far.
“The pickup from the early recovery to the recent recovery was largely due to the pickup in the goods-producing sectors,” Witte explained. “This year, my model is predicting most of the action on the upside is going to come from services. Goods are going to still be contributing but not much more than last year.”
It’s the goods-producing sector that generates the most freight, meaning the trucking industry may not benefit as greatly from the strengthening economy as it has to date.
Of course, any economic outlook contains its share of risks, and Witte acknowledged there’s no shortage of risk on the horizon. Global instability is one ongoing concern, with much of Europe in, or on the brink of, recession.
A continued slump in oil prices could have some negative effects, as demand for US products from oil-producing nations could decline and business investments in the energy sector will be reduced.
However, Witte is still confident the US economy will enjoy a great year in 2015. Beyond that, sustained growth at this pace may be unrealistic, as the economy by year’s end may have peaked.
“As I look farther out to the end of 2015 and into 2016, my model starts to see deceleration, basically because I think the economy is getting closer to its full potential and full employment, so continuing to grow at the rates I see for 2015 becomes problematic.”
James Menzies is editor of Truck News magazine. He has been covering the Canadian trucking industry for more than 15 years and holds a CDL. Reach him at firstname.lastname@example.org or follow him on Twitter at @JamesMenzies. All posts by James Menzies