Trailer Bodybuilders Com Sites Trailer Bodybuilders com Files Uploads 2016 03 Hdad 2016 Logo

Improved employment should help consumption, but weak exports picture should get even worse

March 5, 2016
Improved employment should help consumption, but weak exports picture should get even worse

TRUCKABLE Economic Activity (TEA) in 2016 should continue to expand at a pace similar to that of 2015, but the composition of the TEA growth will continue to change, according to Bob Dieli, president of RDLB Inc.

“This is a normal part of the process,” Dieli said. “We had contributions from fracking and exports that have gone away, but state and local is coming back. Over time, the composition of TEA changes the way the composition of total economic growth changes.

“So to put it in Econospeak, the adjustment to structural transformation will continue, creating both challenges and opportunities. Or in English, to quote from Taylor Swift, ‘It’ll leave you breathless, or with a nasty scar.’ But I think that says it better and it says a lot about how this business is going to operate going forward. You do it wrong and you’re going to get hurt. But you do it right and you will have a great deal of success. There’s something that Stu (MacKay) has said many times, and I concur: ‘This is not your father’s trucking business.’ ”

In 2015, TEA—which is MacKay & Company’s proprietary measure of trucking activity and is designed to identify all types of economic activity that move by truck—accounted for $10.6 trillion, broken down this way: consumption, 44%; investment, 25%; exports, 14%; imports, 10%; and government, 7%.

His analysis of each one for 2016:

•  Consumption. “Consumption should move ahead, reflecting the improved employment situation.”

•  Investment. “Both equipment spending and construction activity could be crimped by higher interest rates.”

•  Exports. “Continued headwinds will inhibit growth. We are very concerned that this is going to be more of a source of weakness than it has been. And it’s already weak.”

•  Imports. “Should continue to track consumption growth.”

•  Government. “State and local spending should provide a sustained boost, while federal will continue to lag. Over the last year, we have seen significant improvement in state and local. Something that had been a drag is now a minor boost.”

Bob Dieli, RDLB Inc

The category of “mining, exploration, shafts, and wells,” which accounts for 7% of total construction and 1% of total TEA, was down 38% in the third quarter of 2015 from the same period the year before.

“This is fracking,” he said. “It fell off the cliff for two reasons: the drop in crude oil prices, which tend to be a major driver of this type of activity; and we have run out of all the easy places to frack. What is out there now is not inaccessible, but there is a higher type of expenses involved. From a trucking standpoint, we have moved out of the trucking-intensive phase of fracking. When you are digging a well, you use a lot of trucks. Once you hook up a well and it’s running through the pipeline, you probably only need a couple of trucks.”

His conclusions for 2016:

•  The expansion phase of the business cycle appears likely to continue through 2016. “Meaning, in actual technical terms, that we will not have any official recession in 2016. Will we change phases? Will we go from expansion to boom? It’s possible. But unlikely.”

•  Events overseas will continue to be a major influence on both the course of aggregate economic growth and the decisions made by the Federal Reserve. “What goes on in China and Brazil and pretty much Western Europe will have a major impact on how our economy performs and how we are able to make decisions, not only for ourselves but as they affect the rest of the world.”

Economic Outlook
William Strauss, senior economist and economic advisor
Federal Reserve Bank of Chicago

The Federal Open Market Committee (FOMC) expects GDP to grow slightly above trend this year, Strauss said.

GDP was 2.1% in 2015 and is projected at 2.3% to 2.5% this year.

William Strauss, Federal Reserve Bank of Chicago

“It’s good growth, but is it going to feel that much different from what we experienced in the last year? Probably not from a macroeconomic standpoint,” Strauss said. “But as we go into the future, growth rates continue to edge lower. So this view that we have all this pent-up demand and if we can just get the right policies and get through these 3% to 4% years … the Fed isn’t seeing that. It’s more of this trend of a flat growth rate. Since the beginning of the expansion from the middle of 2009 to last year, 2.2% is what the economy has averaged. Yet we have seen impressive job growth.”

He said that we should be happy with the 2.1% GDP last year because it met expectations, but there were two shocks to the economy that caused concern: the collapse of oil prices and the boost in the value of the dollar.

“Oil prices had settled down in the $50 to $60 range by the end of 2014 and were expected to move higher in 2015,” he said. “Now it’s down even lower than $30 a barrel. If you’re doing work in an energy-related sector, this is really bad news.” ♦

About the Author

Rick Weber | Associate Editor

Rick Weber has been an associate editor for Trailer/Body Builders since February 2000. A national award-winning sportswriter, he covered the Miami Dolphins for the Fort Myers News-Press following service with publications in California and Australia. He is a graduate of Penn State University.