CCJ Spring Symposium: Economy seen avoiding a recession

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The recent economic stimulus package would have been more effective had it allowed businesses a longer horizon for taking advantage of tax benefits for investment, says Martin Regalia, chief economist for the U.S. Chamber of Commerce.

Although we probably won’t officially know that an economic recession has occurred until months after it ends, the U.S. economy is not in one now, says Martin Regalia, chief economist of the U.S. Chamber of Commerce. “The economy is clearly slow, it is downshifted from a fairly heady pace, but we have not died yet,” Regalia told attendees last month at the CCJ Spring Symposium in Tuscaloosa, Ala. “I think we’ll avoid an outright recession. We’ll see the housing market bottom out, the Fed will continue to liquefy the system, and Congress won’t do much.”

Regalia noted that a committee of seven economists under the auspices of the National Bureau of Economic Research ( basically decides whether the economy is in a recession based on four specific indicators – real total business sales; real personal income less transfers; industrial production; and nonfarm payroll employment. While all are soft, the only one in negative territory is employment, Regalia said.

The economy has remained resilient in the face of major strains in housing, energy and credit markets, Regalia told Symposium attendees. “The economy is continuing to grow.” Exports are healthy due to the weak dollar, he noted. “Without a weak dollar, we would be in a recession. The trade side of the economy has virtually saved our bacon.”

The dollar is down more than 30 percent since 2002 and 17 percent this year alone, Regalia said. “We are buying less abroad and selling more abroad,” he said. “Our goods are more competitive, their goods are less competitive.” Overall, exports have virtually offset the decline in the housing sector, but the trend is not sustainable, Regalia said. “It’s not likely the dollar can continue to depreciate.” The United States has to grow eventually to remain an attractive investment, he said.

Problems in the housing market and the failure of the U.S. economy to create enough jobs to impress the national media have led lawmakers – especially in this election year – to cast about for measures to bolster the economy. Some of the proposed solutions, particularly those that would increase taxes on business, would stifle any minor growth currently taking place, Regalia warned. “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. Allow more time for housing and credit markets to settle out, and allow time to “restore some sanity to the energy markets.”
  • 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 Stearns bailout.
  • Consumer debt: Balance sheets haven’t deteriorated significantly, Regalia said. “The growth potential lies with the consumer,” he said.

Although the economic stimulus package is helping with near-term consumer spending, it’s 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.

While the U.S. economy has weathered numerous shocks, Regalia is concerned about what will happen if the 2001 and 2003 tax cuts are allowed to expire 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.”
– Dean Smallwood

Panel: Surcharges aren’t enough
Carriers must focus on non-revenue miles

As diesel prices have risen, non-productive fuel use due to idling, empty miles and inefficient routing has meant that trucking companies are recouping less of their overall fuel costs through fuel surcharges than two or three years ago, said three trucking executives participating in a panel discussion last month at the CCJ Spring Symposium. “It’s a constant battle,” said Greg Brown, president of Oxford, Ala.-based B.R. Williams.

Ken Adams, president of Birmingham, Ala.-based Southern Cal Transport, warned that the gap between what’s paid at the pump and the shipper’s reimbursement is “a number you need to look at closely. It may surprise you what that gap is.”

Although shippers are facing higher costs through surcharges, they see the reality carriers face and often have no choice. “Customers have been very positive and receptive,” said Jeff Wilmarth, president of Rockford, Ill.-based Silver Arrow Express. “They know the situation.”

Even so, surging diesel prices – especially this year – mean that fuel use not tied to the surcharge leaves carriers hurting. Brown highlighted empty miles as a particularly thorny challenge. “That requires you to look at your whole freight pattern differently.” Freight rates aren’t covering known deadheads, he said. “How to we reduce those deadheads?” he said. “How do we redo pricing on freight, on surcharges?”

Smaller carriers often think that only large carriers have access to information technology tools to help reduce empty miles, but Wilmarth said Silver Arrow has built a simple backhaul calculator in a Microsoft Excel spreadsheet. The company also is reviewing drivers’ routes to cut empty out-of-route miles and improve utilization.

‘Someone is watching you’
Small safety events can have a big effect

All trucking companies should be aware of how inspection-related incidents play a role in their SafeStat scores, which determine how regulators will treat them. That was the message Jeff Davis – vice president of safety and human resources for Dayton, Ohio-based Jet Express – delivered to the CCJ Spring Symposium.

“The more inspections you get, the more money it costs you on the bottom line,” Davis warned. “Mile by mile, driver by driver, safety event by safety event, your company is building its ‘e-perception’ ” of safety in the eyes of the motoring public, shippers, competitors, insurance underwriters, litigators and regulators.

Davis explained that individual safety-related events such as accidents, inspections and even moving violations and warnings can lead to the collection of more information that might paint a negative picture of your safety if you aren’t careful. Trucking executives should pay more attention to “triggers” such as speeding or minor observable safety defects, like inoperable lights. Law enforcement officers often see hundreds of commercial vehicles a day, so it’s logical that they will target easy marks. “Seldom is an inspection a random event.” Then the carrier faces a vehicle out-of-service order for any one of 1,417 possible infractions on a tractor-trailer. “It usually comes down to the ‘BLT,'” he said, referring to brakes, lights and tires.

Driving 10 mph over the speed limit is usually the biggest trigger, Davis said. “That’s when the inspections really start.” And the more inspections you get, the more violations that are found, which will be followed by even more inspections.