The American Trucking Associations on Monday, March 24, urged President Bush to release oil from the Strategic Petroleum Reserve in an attempt to break the current run-up in crude oil prices before they further constrain the U.S. economy.
In a letter to Bush, ATA President and Chief Executive Officer Bill Graves cautioned that skyrocketing diesel prices will magnify the current economic slowdown and delay an economic recovery. Graves advocated for the Bush administration to implement policies that will ensure a steady, affordable supply of oil for the nation’s 3.5 million truck drivers and all American consumers.
“We are very concerned that out-of-control energy prices will greatly magnify our current economic slowdown and delay our economic recovery,” Graves says. “If households have to spend their forthcoming tax rebate checks on energy, the stimulus will be significantly limited. The more consumers spend on fuel, the less they have to spend on other goods or services.” The trucking industry is on a pace to spend an unprecedented $135 billion on diesel fuel this year, $22 billion more than a year earlier.
Bob Costello, ATA’s chief economist, told attendees at the annual meeting of ATA’s National Accounting and Finance Council (NAFC) in Phoenix that oil and diesel markets no longer are functioning on supply and demand, but on the weakness of the U.S. dollar. To illustrate his point, Costello showed a graph of the trend in the exchange rate of the U.S. dollar and the Euro; he then overlaid the retail price of fuel. The trend lines of both variables moved in tandem over time.
“Investors are putting their money overseas and into commodities,” Costello said today, March 25. “If the dollar were to strengthen, oil prices would decrease.”
Saying that the U.S. economy is already in a recession, Costello said that the number of failures in the trucking industry is going to get worse. “This recession is very different than the recessions in the past,” he said. “The current one is much longer but shallower than the others. It’s like ‘death by a thousand cuts.'”
The Federal Reserve has to choose between the lesser of two evils, Costello said: If the Federal Reserve does not cut interest rates further, it could lengthen the recession; but cutting interest rates would weaken the dollar further and increase commodity prices as well as inflation.
If there is a silver lining to the recession, Costello said, it is that capacity likely will tighten once freight volumes improve. He forecasted that the freight economy would decrease by about 2.5 percent in the second quarter of 2008; the freight economy then will improve over the next two quarters, with growth of 1.5 percent and 3 percent, respectively, following the results of the economic stimulus plan recently passed by Congress and signed by Bush.