Economy not dead yet, U.S. Chamber executive tells trucking leaders

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“The economy is clearly slow, it is down- shifted from a fairly heady pace, but we have not died yet.” Those were the reassuring words trucking executives heard from Martin Regalia — vice president of economic and tax policy and chief economist for the U.S. Chamber of Commerce — on Tuesday, June 10, at the CCJ Spring Symposium in Tuscaloosa, Ala.

Nonetheless, Regalia — during his economic outlook presentation to Symposium attendees — said the United States is beset with a number of problems, including housing, high energy prices and the collapse in the credit markets. “The economy is continuing to grow,” Regalia said. “Hopefully at the other end, we will see some improvement.”

While America is “doing quite well on the international scene” with healthy exports, the U.S. economy isn’t creating an impressive enough number of jobs or incomes for the national media to lay off. Solutions being bandied around in Washington, D.C., would stifle any minor growth currently taking place, Regalia said. “Tax increases wouldn’t work,” he said. “That’s the last thing they should be doing.”

As long as the American consumer keeps buying, the economy will keep growing, Regalia said. Real wages are continuing to grow, and job growth, while weak, is trending positively. He cited three factors of consumption that all show positive statistical trends:

  • Disposable income: During the last recession in 2001, Congress passed a stimulus package similar to the one enacted this year. In 2001, there was no negative economic growth; this year, “people will spend that tax cut and boost consumption during the middle quarters,” Regalia said. Give more time for housing and credit markets to settle out, and allow time to “restore some sanity to the energy markets,” he said.
  • Household wealth: “It’s starting to come back a little bit,” said Regalia, who added that the market was having a bigger impact on this trend than housing. Some stabilization in the financial markets is key, he said, and the Federal Reserve has stepped up with interest rate cuts and the Bear Sterns bailout.
  • Consumer debt: Balance sheets haven’t deteriorated significantly, Regalia said. “The growth potential lies with the consumer,” he said.
  • Regarding the housing market, “I cannot believe the type of loans that were made to facilitate this market,” Regalia said. Subprime loans were made to people that had no income, could not qualify for a loan and made no down payment. “Trillions of dollars of these loans were made” on the premise that “home prices never go down,” he said. “Well, when home prices did go down, this house of cards collapsed.” Regalia credited the Federal Reserve: “They tried to create some sense of reality, tried to temper markdowns. We’re starting to see the beginning of the end, or the end of the beginning of this problem,” he said, explaining that declines in new home prices are bottoming out. “I don’t see a freefall in home prices.”

    In this period of declining investments, companies are using profits to buy back stock, said Regalia, who pointed out the drop in investments was the biggest factor during the last recession in 2001. This year’s economic stimulus package was shortsighted because it forced companies to invest during the current tax year before they had a good reason to invest, he said. “We’re not seeing that improvement in the economy,” said Regalia, highlighting declining or flat statistics for industrial production, corporate profits, the Purchasing Managers Index and inventory-to-sales ratio.

    U.S. trade remains a “bright spot in the U.S. economy,” Regalia said. The dollar is down more than 30 percent since 2002 and 17 percent this year alone. “We are buying less abroad and selling more aboard,” he said. “Our goods are more competitive, their goods are less competitive.” Exports have virtually offset the decline in the housing sector, and without the weak dollar, “we would be seeing a real recession,” Regalia said. “It’s not likely the dollar can continue to depreciate. They’re not making money investing in our economy.” The United States has to grow eventually to remain an attractive investment, he said.

    The labor market and inflation both are teetering, but neither presently are reflecting recessionary trends, Regalia said. As far as oil prices go, “I freely admit I don’t know what’s going on,” he said. Supply and demand in the United States have gotten very close, but “we’re one of the only countries that aren’t increasing production,” said Regalia, citing foreign experts that believe the United States has “virtually no energy policy.”

    Speculation has pushed an $85 barrel of oil to $135, Regalia said. “There’s not a lot of plays in the other speculative markets,” he said. “Until that speculator is punished, you’re not going to see these prices go away.” Regalia doubted that oil would drop to $100 per barrel before the end of the year. “How do you cause the speculator to back off some?” he asked. “That’s a problem we’ll be dealing with the entire summer.” Regalia said the entire stimulus package has been offset by high fuel prices.

    “The fact of the matter is, we’re not in a recession,” said Regalia, who cited four factors that make that determination: real total business sales, real personal income less transfers, industrial production and nonfarm payroll employment, the only one of the four presently showing a negative trend.

    “I think we’ll avoid an outright recession,” he said. “We’ll see the housing market bottom out, the Fed will continue to liquefy the system, and Congress won’t do much.” However, Regalia is pessimistic about the economy’s long-term future, citing 2001 and 2003 tax cuts that are coming up for expiration in 2010. At some point, Regalia said, “We are going to see the biggest increase in history,” somewhere on the order of $3 trillion.

    “We need wise leadership, but I haven’t seen that coming out of any of the campaigns,” Regalia said. “These are the types of problems that should be solved in advance.”