When the smoke began to clear from the economic crash known
as the Great Recession, economists hoped for a V-shaped recovery. In a V-shaped
recovery, the economy recedes but then snaps right back after the economic
shock. When the economy starts to
revive, there is a big boost in business and consumer spending, leading to
rapid job growth. This spurt in activity
is similar to people being cooped up after a long winter and then frolicking on
the first warm day of spring.
At that time, some economists warned that recessions caused
by shocks to the financial system, as was the case here, often take many years
to recover from. They cited Japan’s
“Lost Decade” as an example. More
optimistic economists rejected this argument, saying the U.S. economy was much
studier than Japan’s and would bounce back much quicker.
Many other economists predicted a U-shaped recovery. In the U-shaped recovery, the economy recedes,
stays sluggish for some time, and then begins a strong recovery.
Well, we definitely didn’t get a “V,” and we couldn’t get a
“U,” either. Unfortunately, the freight
sector did suffer a “lost decade” in that it took ten years for freight levels to
match pre-recession highs. Manufacturing employment also has not yet recovered,
but automation and globalization have also restricted this number during the
time period, so comparisons are difficult.
So, what
do we call this long, slow slog of a recovery?
I propose labeling it the “Division Bar Recovery” because graphically there is a slanted vertical line with a long horizontal line attached to the right of it. This represents the economy making a small
recovery then flat-lining for an extended period.
 |
| Analyze this! |
This concept of a long, flat line (let’s say around 2% GDP
growth) is intriguing. Sure, there have
been some ups and downs from quarter to quarter, but, get far away enough from
the graph and look at it in its historical context, it’s a flat line. This means economists have been trying to
analyze a flat line for around five years!
Data is collected, analyzed, graphed, and trended. We want
to see trends and get paid to see trends, so therefore, we do see and report on
trends. Thus, the economic growth line is studied intently and minutely, and
this leads to:
“Whoa, the line is going up! Something good is happening.”
“Warning, the line was going up, but now it’s going down!
It might not stop.”
“The line went up, then it went down, and now it’s back to
the middle. It is not expected to go up, unless it goes back down.”
Frankly, you can’t fault economists for doing this. To quote a popular television commercial, “If
you’re an economist, you analyze data, it’s what you do.” Economists have had
to deal with a unique economic environment, combined with broken, unreliable
economic indicators. This has made forecasting anything even more challenging
than normal.
However, even though the economy has not cycled much, the
Class 8 truck market has continued to cycle as in the past, with a high peak in
2015, and a reasonable bottom (down around 35%) expected in 2017. How this happened is still a mystery. If you would have asked me a few years ago if
the truck market could still cycle if the general economy didn’t, I could have
given you at least five reasons why it would never happen. But, of course, it
just did. I’m sure analysts in other industries are dealing with their own
anomalies.
In addition, historically, the demand for commercial
trailers was highly correlated with Class 8 trucks as is highly logical. Except that in Q3 2015, demand for trailers
stayed strong while Class 8 demand began to plummet. The primary reason for this is Dry Van use
was so low during the Great Recession, old units were not replaced, that many
trailers were inactive for an extended time which altered the trade cycle. This resulted in a huge pent-up demand for
van trailers, which has continued to prop up sales. We see similar pent-up demand in the auto
market, because cars are being driven longer due to the Great Recession and the
subsequent weak recovery. It messed up the trade-in cycles here, also. What
happens in these two markets when the pent-up demand runs out? No one really
knows, because there is no trend data to go by and it is difficult to
accurately measure pent-up demand. Auto
sales are forecast to fall 5% this year, and Dry Vans to drop 15% (FTR
forecasts).
Tracking this economic recovery is like watching a movie that
has no plot. Sure, lots of stuff happens, but it is all unrelated. The action goes nowhere. You end up totally
confused by what’s happening and are highly uncertain about what will happen
next.
Economists remain perplexed in this environment. If you
look back over the past several years, you see a straight line. If you look at
the current conditions, you see no trends. There are no discernible factors
which will change current conditions in the short-term. Therefore, your forecast must be…wait for it…a
straight line.
If the economy were a person, he suffered a major trauma
during the recession, started to recover, and then went into a coma. He has flat-lined at a certain level, but his
vitals are good. He is not dying, yet he is not thriving either. An “economic coma” is a good description for
the past several years.
Now there is a new physician, Dr. Trump, proposing to inject
the patient with a new drug: a mixture of new and old chemicals. Will the
patient come out of the coma and start to thrive? Will the injection make the
patient ill? Will the medicine have any effect, or will the coma continue? All of a sudden, this movie has a plot, with
heightened drama and some tension. Stay tuned.
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.)
