Tuesday, August 11, 2015

Getting Back to Where We Were Before

Is this what I've been dreaming of
Cause I'm needing so much more
I'm just trying to get back where we were before
– Blessid Union of Souls

After the Great Recession some economists claimed the U.S. economy would not suffer the same fate as the Japanese “lost decade,” when it took Japan ten years (1991 to 2000) to recover from economic collapse due to financial market shocks.  No, the U.S. economy is better than that due to blah, blah, blah, blah, blah…

Looking at the freight markets, however, these optimistic economists could be right.  Sometime this year, trucking loads are expected to exceed the previous peak set in 2006. So it only took us nine years, not ten. So, Ha! Japan, I guess we really showed you.

This economic recovery has been so slow for so many reasons that economists can’t figure it out.  We may get a good analysis ten or twenty years in the future, but for now we must play with the hand, the weak hand, we’ve been dealt.

I could now display a slew of charts and graphs showing the impact of the recession and slow recovery, but at some point that would bore and depress you and you would stop reading.  So let’s look at a tangible example of the impact of the recession and where we are in this recovery.

I recently vacationed in Clearwater Beach, a resort town 25 miles west of Tampa on the Gulf of Mexico.  There are many hotels and motels along the beach area that were built over the last several decades.  The natural progression in a normal, growing economy would be that new, more upscale, hotels are always being built and older, deteriorating ones are closed. Very similar to what happens in Las Vegas.

Of course the Great Recession drastically changed the natural course of most businesses and markets, Clearwater Beach included.  I don’t know how many hotels/motels were closed due to the Great Recession, but new construction virtually stopped.  U.S hotel occupancy rates plummeted in 2009 and did not really start to significantly improve until 2014.

Coincidently, the first new hotel since the recession opened last year in Clearwater Beach.  It is a beautiful, multi-story, up-scale hotel with room prices around $300 a night.  So in this risk-adverse, plodding-along recovery, someone took the initiative to invest millions in this new enterprise.

However, as you know, this economy is both fickle and unpredictable, and it appears maybe they jumped the gun on this one.  Business at the hotel is not very good.  I know this because I recently stayed there due to the rooms being discounted to $200 on the Internet travel sites.  This was a great bargain compared to the much older place (in serious need of remodeling) I stayed at last year that costed only 10% less.  In addition, the hotel was not very crowded during my stay, even with the discounted price.

I do expect this hotel to eventually be successful.  The travelers to Clearwater Beach tend to be loyal customers to their hotels, so it will take some time for this new hotel to gain traction. It needs to increase sales soon, however, because two more new hotels are under construction.

One of these was originally scheduled to begin construction in 2007, but has been delayed due to the recession and slow recovery.  The bad news is that
the investor purchased the land at peak prices and has lost eight years of profits due to the impact of the Great Recession. The good news is that he feels confident enough to build it now.  This wasn’t quite a lost decade, just eight years.

Now hotel occupancy rates are reaching the record levels of the year 2000. Expected additional demand is the reason for the new Clearwater Beach hotels.  U.S. commercial construction (including hotels) has been much stronger this year. It is a very encouraging sign to see the construction booms operating in Clearwater Beach. In case you’ve forgotten, this is what a real recovery looks like. Perhaps these are the “green shoots” that FED Chairman Ben Bernanke trumpeted in March of 2009. Hey those
shoots finally got here, just six years too late.

And thus is the nature of this plodding, inconsistent, long recovery process.  The risk now may be lower than say 2010, but it’s still considered an uncertain environment.  Companies and investors that are still risk averse expand and spend very cautiously.  Add it all together, and you get our current economy.

You see this lag everywhere in the economy. In the real unemployment rate, in the workforce participation rate. In the capacity utilization rate.  Like a rehabbing drug addict, the economy is fighting a battle just to get back to where we were before. (song)

This post first appeared on the FTR website.  FTR is the leader in analyzing and forecasting the commercial transportation industry.  For more information on FTR reports and services, please click here.)

Monday, July 13, 2015

Mid-Year Review: Where Freight and the Economy Are Headed

There is much discussion and speculation about where the economy is headed the second half of the year, so it is an appropriate time to check the freight markets and the leading economic indicators to gain some insight.

Freight Markets

FTR (the undisputed experts on freight) says truck freight (ton-miles, one ton moved one mile) is currently growing slowly and is forecast to grow 1.6% the rest of 2015.  This is slower growth than in the past several years.  Rail freight is actually declining due to fewer coal and metallic ore shipments.  Factor these out and rail freight is very flat.

Data from Truckstop.com shows that “load availability” was down 24% from the previous week. This has dropped for four consecutive weeks and is not a good sign.

Freight Market Factors

-        Industrial Production – Recent numbers have been weaker than expected, with a -1.3% estimate for Q2. FTR forecasts around 2% growth the remainder of the year. Better, but not that impressive.

-        Construction – There are signs of life here.  Recent numbers have been positive although commercial construction is growing faster than residential.  However the Building Permit numbers and the Home Builders Confidence Index are both moving up.  There is potential for freight growth in this sector, but maybe not until 2016.

-        Auto Sales – The numbers are high, but peaking.  There is not much potential for significant freight growth here.

-        Exports – The May numbers were not strong.  Exports have been flat for months and are running below last year’s level.  The strong U.S. dollar and tepid world demand are crimping sales.  There is potential for freight growth here, but it’s not likely to happen soon. 

So freight is expected to grow faster than the first half of the year, but still not very good.  There was no “snap back” to compensate for the weak Q1, as I predicted in this blog in March. Let’s see what some indicators say about the economy is the second half.

Economic Factors:

-        General Economic Indicators – The ECRI Weekly Leading Growth Index went positive in mid-April and has been inching up ever since.  The Conference Board Index of Leading Economic indicators has been fairly strong the last two months.  This means the economy does have some momentum going into the second half of the year and the risk of recession (baring a Greek or Chinese upset) in the next 12 months is low.

-        Order Data – New Order data from ISM and the government are mixed. ISM shows solid growth, the government data is flat. The ISM data indicates backlogs are shrinking.  I know that backlogs are shrinking for commercial trucks and trailers after peaking for this cycle in Q1. Maybe other industries are experiencing this as well.

-        Survey Data – The Bloomberg Consumer Confidence Index is back to its March level after recovering from a weak May. Consumers are more hopeful than confident and therefore still are being cautious about purchases.  The NFIB Small Business Optimism has increased some the last three months.  World business confidence is declining however (Moody’s).  Again, there is no sign of retreating but no big push forward either.

-        Sales Data – Retail sales are still subdued and imports are not great either.  My index which measures disposable income spending is actually up 3.7%.  This does contradict my last post that implied that consumers were not spending their “lower gas price” dividend.  Economists expect retail sales to rebound strong in June with some saying “lower, stable, gas prices” have finally had an impact.  This would indicate better growth prospects in the second half of the year.

The Call

It appears the industrial sector is growing slower than the consumer sector and should continue to do so for a while.  It is concerning that freight volumes have slowed because this is usually a good leading economic indicator.  This analysis would indicate moderate growth for the next few quarters.

This is consistent with the Wall Street Journal June Economic Survey.  The GDP forecasts for the second half of the year range from 2.2% to 4.0%, with the average being 3.0%.  This average sounds reasonable, but if I had to bet on the outcome, I’m taking the “under”. 

This post first appeared on the FTR website.  FTR is the leader in analyzing and forecasting the commercial transportation industry.  For more information on FTR reports and services, please click here.)

Monday, June 29, 2015

Is There A Hole In Our Pocket?

“Now I've got a hole in my pocket, a hole in my shirt, a whole lot of trouble, he said

But now the money is gone, life carries on and I miss it like a hole in the head” 

(Passenger – Michael David Rosenberg)

When gas prices fell dramatically last fall, I enthusiastically predicted it would be a big boost to the economy with more than $70 billion, yeah $70 BILLION, in added consumer spending flowing into the system.  And I even thought the impact would be greater than normal due to the psychological boost it would provide to consumers.  Why did I believe this? Because in the past a drop in gas prices usually produced the same impact as a tax cut and consumer spending increased.

Well welcome to the 2010’s where you can’t rely on some types of historical data to forecast the future.  I have been claiming since 2010 that certain past reliable economic indicators are broken and are still unreliable.  And even then I have made at least two inaccurate predictions in the past year that were based on “rock-solid” history. Those rocks are now crushed stone.

Retail sales have been moderate and inconsistent at best since October and that “huge” economic boost equated to a negative GDP in Q1. So what the heck happened here?

It was expected that weaker crude oil prices would hurt the energy industry, however economists did not think crude would go so low and stay depressed for this long.  It turns out that the energy markets were a significant growth engine for the entire economy and fueling considerable ancillary spending. Once the air was let out of that balloon, the economy began to stall.

However, the bigger question is: What happened to all this money the consumer pocketed from lower gas prices? If we didn’t spend it, where did the money go?  Here is the speculation:

We Saved It
Some economists speculate that the savings rate has increased since the Great Recession.  There were long lasting cultural changes regarding saving and spending following the Great Depression, so the thinking is people’s attitude and behavior have changed due to going through the Great Recession and they are managing their money more responsibly.

I’m not really buying into this one.  This is probably true for a small segment of the population, but I still believe this is a consumption-crazed society and it will take more than just a recession to change that.

We Don’t Think It Will Last

Consumers aren’t spending the windfall because they don’t expect gas prices to stay low.  And to a certain extent they are correct.  The average gas price is now $2.82/gal up from the low point of $1.98, but still 90¢ lower than a year ago.  So maybe this money will be spent on something in the future, but not now.  Technically it is “savings”, but functionally it is delayed spending. Regardless, it’s not being spent.

Nervous Consumers

There have been surveys showing people are getting more nervous about losing their jobs.  This is perplexing based on the fairly positive jobs data this year.  Maybe it was the announcements of future job cuts by some large corporations at the beginning of the year which spooked people.

Regardless, the gas savings has not made consumers more confident.  The UM Consumer Confidence Index was 94.1 in October and only 96.1 now.   It did grow at the beginning of the year but has moderated since.  Likewise the Gallup Economic Confidence Index was -13 in October and -9 now.  If consumers are not confident about the future, they don’t spend money in the present.

Wealthier Consumers Are Not Purchasing Luxury Items

There have been articles detailing this trend.  People were spending recklessly before the recession and now could be reverting to more normal patterns.  After everything that has happened and the derision of the “rich” in the news/political arena, conspicuous consumption is not as valued as it had been.

The Costs of Healthcare Are Increasing

There have been numerous articles and analyses done on the increased costs associated with healthcare. Forget about the cases where the cases where someone’s premium goes up 80%, consider a more normal case where someone’s premium went up $20 a month and their deductible increased by a $1000 at the start of 2015.  Throw in some higher co-pay fees and lower reimbursements for services by your insurance company.

The Affordable Care Act may be far from affordable for most people.  I believe almost everyone was impacted by it.  The insurance companies and doctors are not going to make less money, so they figured out ways to extract more money from the people who already had insurance.  I know I am paying more.  My family used to hit our deductible around May, now we never hit it. I am writing small to moderate checks the entire year for medical bills.

That may have been the plan all along. For people to write “absorbable” checks every month so they don’t realize how much more they are really spending.  The problem is all the “micro-checks” when added together can cause a macro impact on the economy.  Add this impact with the employment issues (29 hour work week, 50 employee small business clause) and the Affordable Care Act may turn out to be a huge drain on economic growth.

That means in January, just about the time people were getting ready to spend their gas dividend (economists say there is about a two month lag from when gas prices fall), their healthcare costs increased, wiping out that savings.  It means we tried to pocket the savings, but there was a hole in this pocket.

Economists calculate the average household savings on lower gas prices will be about $700.  If you spend an additional $700 on healthcare during the year, you break even. If your healthcare costs rise more, you lose.  Increased healthcare costs may be reason for disappointing retail sales in 2015 and may have contributed to the weak Q1 GDP. 

It may have been a fortunate coincidence that consumers got more money from gas savings just as they were required to pay more money for healthcare.  However, we may not be nearly as fortunate if gas prices rise back to previous levels just as the 2016 healthcare increases hit.

“Now I've got a hole in my pocket, a hole in my shirt, a whole lot of trouble, he said

But now the money is gone, life carries on and I miss it like a hole in the head

This post first appeared on the FTR website.  FTR is the leader in analyzing and forecasting the commercial transportation industry.  For more information on FTR reports and services, please click here.)

Thursday, June 11, 2015

Mixed Signals in the Economy Cause Uncertainty Everywhere

The economy continues to send mixed signals.  You look at some indicators and things look good. However, other important indicators signal doom is right around the corner.  It is a mixed-bag; it is mumbo-jumbo; it is a dog’s breakfast of economic proportions.

But how does this uncertainty play out in real industries?  What problems is it causing? How can companies plan under these circumstances? Have the extended, long-lasting, low interest rates created any bubbles?

The commercial vehicle market displays some of these peculiarities.  Even though the economy has not experienced its typical cycles since 2011, this industry has been performing in a somewhat typical cycle for the past few years.  This market is approaching the peak and should get there late this year.  So as the economy stalls, business is still booming, but for how long?

Here is an analysis of the current state of the commercial vehicle market:

Order rates in both Class 8 and Commercial Trailer markets have started to weaken after achieving sky-high levels at the end of 2014.  Backlogs have peaked for this upcycle and started their decent. The big question now: when does production start to fall?  It is a very interesting question, because production is increasing at the same time orders are falling. 

However, there are significant economic factors to be concerned about.  The economy has temporarily stalled out and is expected to show almost no growth for the first half of the year.  No big “snap back” is expected in the second half of the year either.  The slowdown in the industrial sectors of the economy impacts freight growth, of course, and the forecast for truck freight has been lowered for the year.

Weakening freight demand and declining orders would almost always result in lower equipment forecasts, but the situation is complicated by the huge backlogs.  OEMs have many orders booked for Q3 and Q4, the result of the deluge of orders received from September 2014 through January 2015.  Backlogs are strong enough to support the production forecasts even if orders fall to traditional low levels this summer.  The current forecast assumes that production will remain near current levels for the rest of the year.

The key question now is: how solid are these backlogs?  This is important because most of the orders for delivery in Q3 and Q4 were placed 8-12 months in advance to reserve scarce build slots at the OEMs.  The OEMs had “right-sized” after the Great Recession meaning there was less industry capacity to handle the peak of the current upcycle. 

Fleets were anticipating a continued strong, growing economy when they placed these orders; however, based on the current economic reports, things may be much different.  Two months ago, OEMs were very confident that the orders were “real,” “solid,” and would be built.  Now they are hoping that this will be the case.
What happens this time after you reach the peak?

OEMs made rational decisions to “lock up” future build slots with these so-called “place-holder” orders, since there is no penalty for future cancellations.  However, based on the current economic forecasts, these orders become more tenuous every day.  There is the possibility that all the new equipment being put into service over the next few months will create enough extra capacity that all those units on order may not be needed.  Unfortunately, the industry has experienced this situation before during economic downturns.

It is expected the great majority of these orders will, in fact, be produced. However, the possibility exists that some of these orders could be cancelled, or, more likely, moved out for delivery in 2016.  It is an uncertain backlog, in an uncertain economy.  It will be interesting to see how this mixed bag falls out.


I know other industries have to be experiencing unique situations, even six years after the Great Recession.  It is my contention that the recession continues to impact business and consumers significantly, in ways it will take economists maybe decades to understand.

This post first appeared on the FTR website.  FTR is the leader in analyzing and forecasting the commercial transportation industry.  For more information on FTR reports and services, please click here.)

Monday, June 1, 2015

It’s Starting To Feel A Little R-wordy

It’s time to discuss the R-word.  The R-word is the economic equivalent of those other “letter defined” words that you cannot say.  That’s because talking about the R-word is unpleasant, distasteful and is not suitable for speculation in esteemed economic circles.

That being stated, it’s beginning to feel a little R-wordy.  I say feel because you can’t really see an R-word coming and neither can you hear it.  It invades the economy like a bad cold virus. It does its work in secret, much below the radar, until it becomes burdensome to everyone. 

When R-words occur everyone is so surprised.  How could this have happened?  Why didn’t anyone see this coming?  But you seldom do. R-words actually begin months before they are discovered. They are similar to cheating lovers suddenly being revealed. Again there is much shock, outrage, and despair, when an R-word is uncovered.

So R-words are only felt, sensed, and detected by intuition before their arrival.  And it feels very R-wordy right now.  Q1 GDP is currently estimated at negative 0.7%.  Because the technical definition of the R-word is two consecutive quarters of negative growth, if Q2 GDP is negative, we have an R-word.   Provided Q2 is again just slightly negative and growth resumes in Q3, it would be one of the weakest R-words on record. 

Just heard someone say the R-word!
If this is the bottom of the economic cycle and the economy began growing again, this would be a good thing.  However, there is a psychological element to R-words and headlines such as “U.S. Economy Goes Into (R-word)” could cause disruptions in consumer spending and the stock market.

Some economists claim weak Q1 GDP was a result of bad weather and the West Coast Port strike.  These had an impact but not as much as you might think.  The biggest impact of the weather was in the Northeast and it did not impact manufacturing much, unlike last year’s Polar Vortex.  In addition, economic data from the period during the strike show that the effect was limited in duration.  Other data suggest the economy had already started to slow down at the beginning of year and these addition factors hastened its decent. 

Therefore Q2 economic growth becomes critical.  How’s it looking? In a word, tenuous.  Current data on Retail and Wholesale Sales, Factory and Durable Goods Orders, Wholesale Inventories, Export Sales Growth and Import Prices are all flashing red. (To see the graphs and detailed explanation, click link at the end).  Of course there are other indicators, The Conference Board Leading Economic Index for one, that indicate there will be no R-word this year.  This is not an unusual occurrence, it remains a strange economic environment and some indicators have been inconsistent or unreliable since the Great Recession (word is permissible in the past tense only).

To try to figure this out, I called economist Pat.  I believe economist Pat is a brilliant economist because he and I almost always agree on almost everything.  I remember calling Pat in December of 2007 because I was feeling R-wordy and he said he was feeling it also – and that time we turned out to be correct.

So what does economist Pat say?  He believes Q2 GDP will come in between 1-2% positive.  Not a great quarter, but not that close to an R-word.  

The Economic Cycle Research Institute’s (ECRI) Weekly Leading Growth Index also says no R-word.  It crossed into negative territory last October, bottomed out between January and March, but now due to solid growth since then, is well in positive territory.

So now I do feel much better, but I still don’t feel that great ……

This post first appeared on the FTR website.  FTR is the leader in analyzing and forecasting the commercial transportation industry.  For more information on FTR reports and services, please click here.)

Tuesday, May 5, 2015

R-E-S-P-E-C-T – What It Means To Trucking, Business and Everyone

“New Ways to Think about Driver Retention” was a topic discussed at last month’s Fleet Forum hosted by Heavy Duty Trucking and Fleet Owner magazines at the Mid-America Truck Show.  Attendees no doubt expected to hear about new ways to structure salaries and schedule routes, however a much different message was delivered.

Representatives from the four fleets, Ozinga Brothers (Chicago), Load One (Taylor, MI), Carbon Express (Wharton, NJ), and Southeastern Freight Lines, were very consistent in their thinking and approach on this topic.  They agreed that the most important aspect of driver retention is “respect”.

According to the panel, many fleets do not show enough respect to their drivers, and when drivers do not feel respected, they become frustrated and quit.  The fleets on the panel have acted to address this situation by developing programs and strategies to make their drivers feel more respected.
For example, one important element of providing respect is better communication.  One fleet instituted a process that makes sure the drivers are informed about all issues relevant to doing their jobs successfully.  Another has developed a two-way evaluation system so that drivers can communicate how well they believe their company is treating them.  A system where the drivers are consistently talking with the mechanic who services their truck was also presented.

While the concept of showing greater respect initially seems obvious, a “no-brainer” if you will, I think the issue is more pronounced than you might think.  Companies in general don’t show their employees enough respect.  This phenomenon is more obvious regarding truck drivers because the job is demanding; also, due to the driver shortage, turnover is high and employees can easily bounce from company to company.

This “respect gap” is largely a result of changes in our culture.  Society does not respect blue-collar, tradesmen, and factory workers the way it once did.  We value “smart work” much more highly than “hard work.”  We are working smarter, not harder, but we have forgotten that hard work is still important and should be valued by everyone.

The preference for “smart work” has its costs.  Precisely, it translates into around $1.2 trillion of student loan debt that millions of debtors are struggling to pay off. (Ask me again why the housing market is so weak.)  This equates to an astounding 6% of the overall national debt.  We convinced the Millennials that they had to go to college to be successful, and then threw tons of money at them for education to get degrees that are not currently in high demand in this economy.

This college-bias was highlighted recently when it was “revealed” that a current governor, who may be a presidential candidate, never (gasp), never (double gasp), graduated from college!  Articles were written (of course by journalists with college degrees) questioning his ability to run the country without the benefit of a full (he attended for three years) college degree.  I have no idea how this guy is actually running a state without a diploma on the wall.  Of course, this culturally driven lack of respect is harming our entire political process also.  

In another recent incident, a video was released showing a television sports reporter berating an employee of a towing company.  Part of the rant targeted the person’s lack of education and profession.  This lack of respect and college-bias would seem to be growing worse.

Another cost of this bias is that while people sit home with their new Sports Management degrees, unable to find jobs in their field and pay off the $30,000 college loan, good, skilled, manufacturing jobs remain unfilled.  This is also hurting the transportation equipment industry as OEMs try to find enough production workers to meet robust truck and trailer demand.  Spread this condition throughout all industries, and you have a misallocation of labor that is hindering economic growth.

Cultural norms are very difficult to change.  You may have heard the trendy saying, “treat the janitor with the same level of respect as the CEO.”  I guess it’s time to stop agreeing with the statement and start actually living it out.  Fleets need to respect their drivers more, companies need to respect their employees more, and we all need to respect each other more.

Addendum: Consider the events the last two weeks in Baltimore in the context of “respect”.  Regardless of how you view the situation, can we agree that if everyone involved showed more respect to everyone else involved, that maybe this incident would have turned out better for everyone?

This post first appeared on the FTR website.  FTR is the leader in analyzing and forecasting the commercial transportation industry.  For more information on FTR reports and services, please click here.)

Friday, April 17, 2015

Did the Economy Just Literally Run Out Of Gas?

The Federal Reserve of Atlanta made big news last week when it announced it lowered its forecast for Q1 GDP growth to 0%. Yeah, that’s zip, zero, nada, nothing!

Most economists had downgraded their forecasts, but this announcement still was a surprise. Commentators quickly blamed bad weather as the reason. As I have mentioned before, this year’s weather was extreme, but it did not disrupt manufacturing nearly as much as last year’s Polar Vortex.

There were piles of snow in the Northeast, but that would impact the service industries more than manufacturing. However, the ISM Non-manufacturing Index was at 56.5 before the bad weather and 56.5 after (with little variation in between), so the service sector couldn’t have been hit too hard.

The other factor in Q1 is the West Coast Port Strike. The strike was settled in February, but it caused finished product and component product disruptions before then and will continue to create issues through May. The impact is difficult to measure. Some plants did shut down for a couple days due to lack of parts. However, most manufacturers found ways to work around this issue, albeit at higher costs. So again, there is an impact, but not a significant one.

Economists who believe the weather and port problems are the reason for a weak Q1 predict a “snap back” in Q2. But the data doesn’t support this yet. The ISM manufacturing index for March was 51.5%, actually down from 52.9% in February. The Wall Street Journal Economic Survey Panel (March) is forecasting 3.0% for Q2, an improvement back to previous expectations but certainly not a snap back.

Let’s assume that the Wall Street Journal Panel Q1 forecast of 2.3% took into account the weather impact. We will subtract another 80 basis points due to the port strike. That gets us to 1.5% growth. If we assume the Atlanta FED forecast is correct, what caused the 1.5% to evaporate?
What has changed recently? What significant economic occurrence? What, what, what? Oh yes, crude oil prices, and thus gasoline prices, have plummeted.

But wasn’t that supposed to be a boon to the economy as an estimated $70-$100 billion dollars poured into consumer spending as disposable income grew? Except it hasn’t happened. Consumers are not spending the extra “gas savings” cash as freely as they did in the past. Why? What is different this time?

The Great Recession changed many things, including consumers’ attitudes. One week your job was going great, you were making good money, and running a big credit card balance. The next week you were unemployed, with no hope of finding a job quickly, and no chance of paying off your debts for a long time. After the Great Recession, people are more conservative with purchasing decisions and, this time, are not spending the gas savings windfall.

Of course when crude prices fell, economists warned that the economy would also take a hit due to reduced oil and gas exploration infrastructure and drilling. This part of the equation has come true, although actual production remains fairly steady.

Conventional wisdom would say that the energy industry is a small segment of the total economy and a slowdown in activity should have a limited impact. But what if the conventional wisdom is wrong? At times during this long recovery we have heard “the energy sector is the only area of high growth.” We have seen better job growth numbers, followed with the caveat of “most of these jobs are low-wage positions in the service sector, except for all the higher paying jobs in energy.” Perhaps it was the energy sector and the ancillary spending, jobs, and positive news that was driving the modest economic growth for the past few years. And now, there was an unexpected shock to this growth machine that is letting the air out of the growth balloon.

Remember that economists were confused by having a recovery which wasn’t led by housing; so what then was leading it, beyond energy? Also, we do know what happened when the economy, being led by a housing surge, albeit artificially generated, crashed due to an unexpected shock to that industry.

I’m going to predict that the energy slowdown is having a much bigger impact than anticipated. It is probably not responsible for the entire 1.5% drop mentioned previously; the stronger U.S. dollar is hurting exports, so this causes part of the drag.

How viable is the Atlanta FED 0% Q1 GDP forecast? The lowest forecast in the March WSJ poll was 1%. However, that forecast is from Brian Wesbury and Robert Stein from First Trust Advisors, L.P. And these guys are good. They write the First Trust Economics Blog – The Antidote to Conventional Wisdom, so naturally they are two of my favorite economists. And it looks like they were way ahead of the game on this one.

It would appear the engine of economic growth has literally run out of gas. Regardless of what caused the slowdown, the momentum has been lost. Unfortunately, it appears it will be much harder to regain traction this time.

This post first appeared on the FTR website.  FTR is the leader in analyzing and forecasting the commercial transportation industry.  For more information on FTR reports and services, please click here.)