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.)