Monday, December 26, 2016

A Shot of Confidence

There has been a surge in consumer confidence since the election:

-         The Conference Board Consumer Confidence Index jumped 6 points from October to November.

-         The University of Michigan Index of Consumer Sentiment gained 5.6 points from October to November. Note: There was another 4.4 gain in December, taking the index to its highest reading since 2004.

-         The Gallup U.S. Economic Confidence Index is skyrocketing – reaching a nine-year high of +8, versus a reading of -11 before the election. According to Gallup, the index has “been below zero nearly continuously since 2008.”

Likewise, there is heightened optimism in the business community:

-         The stock market (DJI) is up more than 8% since the election.

-         Some economists are predicting consecutive quarters of 4% GDP growth before too long.

-         The OECD (Organization for Economic Co-operation and Development) says the growth rate of the economy will double by 2018. 

Non-Economic Factors in Play

So what is going on here?  There are several psychological and cultural factors that are impacting these occurrences: 

-         The Halo Effect

This says that people project their positive feelings about one aspect of a person onto many other traits regarding that person.  In this case, if the winner of the election is perceived as intelligent, competent, and/or capable, then there is a belief that his policies will be likewise.  (There is a reverse-halo effect too, as you may have read.)

-         The Winner Effect

General George Patton once said, “Americans love a winner and will not tolerate a loser.”  Our culture puts a high value on winning.  That’s why we are so sports-crazed, and why losing candidates have problems running again and winning.  This time we have a very vocal winner espousing a “winning” message, creating increased optimism.

-         The Sticker Effect

(This one I made up, and it is related to the Halo Effect and the Winner Effect.)  A person will project onto a winning candidate all the positive things the person believes in and wants accomplished.  “This elected official believes in the same things I do and will be able to change things the way I want them changed.”  There can also be negative stickers. “This elected official is against everything I believe in and will make everything much worse.”   

Other Factors

-         We have just completed the longest, roughest, and wildest campaign of our lifetimes.  Some people are feeling better about things because the election is over and there is less uncertainty.  This would have happened to some degree regardless of the outcome. 

-         President-elect Trump has more business experience than any POTUS in history.  Many (including some economists) are expecting that experience to translate into a much stronger economy.  It must be remembered, this result is not guaranteed.  We are in new territory here, and the economy is never that easily controlled.  Regardless, the new administration can be categorized as “pro-business”

A Pseudo-Economic Factor

-         Animal Spirits

This is a John Maynard Keyes term for when economic decisions are made instinctively or emotionally.  It is often used when economists lack a rational or standard explanation of what’s happening in the economy or stock market.  Apparently some positive animal spirits have been stirred by this election.

What About Business Confidence?

I expect the new surveys on business confidence to show significant increases also, for the same reasons listed above.  However, due to the sticker effect, when the president-elect talks about reducing regulations, many business people hear this: “All the regulations I don’t like will be repealed, and all pending regulations will be cancelled.”

Existing business regulations that inhibit business competiveness and efficiency are vulnerable for elimination.  Those dealing with safety factors are more likely to survive.  Environmental regulations will be subject to review.  I would expect all pending regulations to be put on hold and then reexamined.

The Impact on the Trucking Industry Regulations

Expect all pending regulations to be put on hold pending further review.  However, regulations involving safety factors will probably be enacted in some form after review.  Regulations that limit the ability to compete, or be efficient, may get dropped or changed.  The Electronic-Log-Device probably moves ahead since implementation has already started, it is a safety rule, and it does not implement a new standard, it merely uses technology to insure better compliance with a current standard.

What Happens to The Economy in 2017?

President-elect Trump’s economic plan was regarded as average at best, and disastrous at worst, during the campaign.  Now, some economists believe it is brilliant. Of course, it is not as bad as described in the past, and probably not as good as the confidence factors indicate now. In addition, it will take some time for the plan, if it works, to have a real positive impact.

Will consumers and businesses translate the current euphoria into greater economic growth? Are we entering into another “Era of Good Feeling”? A positive shot of confidence can influence consumer and business behavior, but we have not been in this situation since Hoover was elected in 1928 and the economy can be a very fickle thing.

Currently, the economy is sending very mixed messages.  The big-picture, macro, numbers have been looking good.  However, the on-the-ground view in Ohio is flashing warning signs.  There have been announcements of plant closings and layoffs. Tax revenue for Ohio in November (a real, not estimated, figure) was 5% under estimates. Numbers like that usually happen during recessions.  Present conditions are starting to remind me a little of December 2008.  Hold on econo-fans, this could be a wild 2017.

 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, December 6, 2016

Time to Make More Than Just Donuts

I have good economic news! A national chain has built a brand new facility just north of my local “economic warzone” (an area near me devastated by the Great Recession and now regressing after making a modest recovery).

Yes, a state-of-the-art donut store will soon open on a corner lot, near a relatively new exit off the interstate.  It does seem like an odd location for a donut shop.  The interchange is between two nearby exits.  It was constructed to alleviate future congestion at the airport exit to the north, provided the airport experiences significant growth.  The new exit has created some retail activity, but traffic along the corridor is still modest. Other than the expressway, there just isn’t much there.  I will assume the company completed a valid traffic study and the business is viable.

While some of the sales will come from existing local donut and coffee vendors, to be successful it will have to sell more donuts.  But do we really need more donuts?  Look at the obesity and health data; heck, just look around at people.  We do not need any more donuts.  And there also is the issue with selling scalding hot coffee to people just before they enter a jammed expressway on their morning commute.

Now this donut shop will create jobs, there is a huge sign out in front advertising the big recruitment/interview dates.  It may be difficult to recruit workers during the Christmas shopping season since retail sales are still strong in the region, and with statistical unemployment near the national average.

These, however, are low-wage jobs.  The types of jobs that politicians rail against because they do not pay a living wage.  But no one is forcing people to take the jobs, and the people working them will be happy to get them.  You could pay a minimum wage of $15/hour for these jobs; however, it should be noted that the skills necessary to bake small cakes and sell them are possessed by numerous merchants in Central Africa.  Fortunately, fresh donuts cannot be imported and neither can the workers, since our eastern border is much less porous than the southern one.

Even then, it appears this could just be another job tradeoff.  A local metal working factory is closing, reportedly due to increased competition from Mexico.  This is emblematic of the economic recovery after the Great Recession, high-end manufacturing and professional jobs, being replaced by retail and service jobs.  On paper, it looks like an even swap.  To a guy who just lost his 30-year factory job, however, it looks like it’s time to make the donuts.  

The donut shop also highlights the issues with income distribution.  Our society is having problems responding to cultural changes regarding the wage gap.  The recovery has been good for people who have jobs, but stubbornly terrible for those who don’t. Well-to-do suburbanites will now be spending some of their disposable income on pleasure food and expensive coffee, prepared by people making minimum wage, some of whom need better, full-time jobs if they could find one. And then there are people just ten miles away who don’t have basic food to eat.  I’m not making a judgement, I do like donuts, but the big picture isn’t that pretty.

Such is life in the Donut Recovery. This economic recovery has been soft and doughy, with a large hole right in the middle.  Yes, at times it is sweet, but it is loaded with many empty calories.  Too many donuts in this “Donut Recovery” have resulted in us becoming fat, dumb, and happy…or bloated, disinterested, and content with the status quo.

Alas, things remain distressed in that “economic war zone.” “For Lease” signs still line the roads, and no one is moving in.  That brand-new office building, about which I previously wrote, still does not have even one tenant. Unless something happens soon, the owner will have gone “zero-for-2016.”  Too bad, office workers there could have bought some coffee and donuts at the new shop.

In this mega game of “Dollars to Donuts,” the donuts keep winning.

 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.)