Positive news in the last few days appears to signal that the U.S. economy is finally beginning to emerge from its doldrums and show continued progress towards a full recovery.
On Wednesday, Wall Street Journal reporter Joe Connolly, appearing on New York City’s WCBS Newsradio 880, observed that “improvement in the economy is accelerating on multiple fronts.” He related that the latest positive indicator is loan growth, both in the consumer and business sectors. That’s one sign of an improving economy, to be sure, and a Labor Dept. report out yesterday showing U.S. wholesale prices falling last month is another as down the line the impact of those lower prices will be higher consumer spending. Meanwhile, new research from investment firm Robert W. Baird & Co. forecasts continued transportation freight demand and pricing growth in 2012.
According to a report in Wednesday’s Wall Street Journal, major banks are “reopening the lending spigot amid signs that an improving economy is spurring companies and individuals to borrow more.” On Tuesday, Citigroup and Wells Fargo recorded their strongest loan-growth numbers since the financial crisis, per the report, which noted the figures “confirm a warming trend highlighted Friday by J.P. Morgan Chase & Co.”
The lending data is the latest indicator the “deleveraging that swept the economy following the 2007-08 turmoil may be easing.” The report pointed out that at Citi, retail-banking loans climbed 15% from a year ago to $133 billion. And at Wells Fargo, commercial and industrial loans jumped 11% from a year ago to $167 billion at Dec. 31, “amid what chief financial officer Tim Sloan called broad-based growth.”
The Journal stated that this loan expansion is “good news for the U.S. economy at a time when unemployment remains high and investors are fretting about the prospect of an economic downturn or market shock spurred by Europe’s debt crisis. Increased credit availability stands to help U.S. businesses that have been looking to finance new growth.”
Per a report posted by the Associated Press (AP), U.S. wholesale prices dropped last month “because companies paid less for food and energy, evidence that inflation remains tame.” AP reported that the Dept. of Labor said that the producer price index - which measures price changes before they reach consumers - fell 0.1% in December. That follows a 0.3% hike the previous month but is the second drop in three months.
AP pointed out that “excluding volatile food and energy costs, so-called core wholesale prices rose 0.3%.” That marks the largest increase in five months and that hike was driven by higher prices for pickup trucks, cars and pharmaceuticals.
Still, AP noted, overall wholesale prices are trending lower. “They increased 4.8% in December compared to the same month a year ago. That’s the slowest annual increase since January and down from a recent peak of 7.1% in July.”
Some of the increase in core prices may be temporary as flooding last year in Thailand may have disrupted auto supply chains, pushing up pickup truck and car prices. Those higher truck prices alone accounted for about one-third of the rise in core prices.
AP quoted Paul Ashworth, chief U.S. economist at Capital Economics, in a note to clients as saying: “Both headline and core inflation should be a lot lower by the end of this year.”
That’s good economic news as reduced wholesale costs “mean manufacturers and retailers don’t face as much pressure to raise prices for consumers in order to maintain profits. That could keep consumer price inflation in check.” Lower inflation also provides the Federal Reserve “with more leeway to keep interest rates low and take other steps to boost the economy,” stated AP.
AP also reported that “consumer spending likely grew at the fastest pace in a year in the final three months of 2011. Some economists estimate that it rose at a 3% annual pace in the October-December quarter, up from a 1.7% rate in the third quarter.”
Benjamin J. Hartford, CFA, of the Baird Transportation/Logistics Equity Research Team, stated yesterday that “we believe we will continue to experience positive growth across modes in 2012.”
According to Hartford, key 2012 themes for transportation include:
- Slowing but solidly positive US freight pricing growth, supported by tight truckload capacity. “We expect contractual truckload rate growth of +2-4% year over year in 2012, a rate that meets or exceeds underlying cost inflation. Tight truck capacity and real truckload pricing growth supports solidly positive rate growth across domestic US modes.”
- Industrial end-market demand outlook more favorable than retail. “Solidly positive US industrial production outlook (+3% year-over-year consensus) supports modes with industrial freight exposure (rails, parcel, LTL).”
- Similarly, near-term domestic US freight outlook healthier than international. “Near-term international freight outlook remains choppy given global economic uncertainty, timing of Chinese New Year; clarity to late 1Q trends a potential catalyst.”
- Inventories lean, particularly within retail channel; but no near-term restocking catalyst expected. “Retail shippers remain guarded on appetite for inventory risk given lack of near-term visibility to consumer demand. However, retail inventory/sales at/near all-time low, limiting freight downside risk.”