Mark Montague and I often get into great discussions about economic trends and their impact on transportation and logistics. In this online debate, we share our personal opinions and interpretations of economic trends, reflecting our many decades of business experience and our MBA training.
What do you think? Please add your own views in the comments field below, and join the discussion. 
RECESSION in 2013? YES or NO?
MARK – No recession. I think we will have a soft first quarter followed by a recovery in Q2, so we won’t have the two consecutive quarters of negative GDP that are the definition of a recession. Lower prices on fuel, food and other important purchases will help consumers to balance their checkbooks. When costs are lower, it reduces the effect of tax increases and tight credit. Finally, home values are rising, which will provide an important psychological boost. New home construction should be robust this year, too, starting in Q2. With the momentum from a strong second quarter, we can be more than okay this year, provided the international scene remains stable.
PEGGY – Yes, I think we are headed for recession, but I will be happy to be wrong. I don’t think we can count on increased consumer spending in 2013. Consumer debt in 2012 was the lowest since 1997, unemployment is still hovering at about 8% and work force participation is at a ten-year low. The end result is less money in consumers’ pockets, and a decline in spending. Consumers drive 70% of the economy, so a few percentage points’ worth of penny-pinching can make a big difference. Manufacturers are not going to ramp up production if nobody wants to buy their goods.
FISCAL CLIFF and the DEBT CEILING
MARK – I looked at the last-minute agreement in Congress to avoid the “fiscal cliff” and I saw opportunity for a decent business year for most companies. Maybe the deal wasn’t great, but it kept the stock market from tumbling, and it kept income tax rates stable for most Americans.
PEGGY – The fiscal cliff deal prevented automatic cuts across the board, but it only postponed the pain. Federal government spending and deficits are totally out of control, and the debt ceiling fight is still ahead of us.
MARK – I admit that prospects don’t look great for the U.S. economy for the next couple of months. The fourth quarter of 2012 was a disappointment, and the first quarter of 2013 could be worse. We might even see a decline in GDP. On the bright side, though, I think we’ll put all this behind us in the spring. Businesses expect Q1 to be soft, they’ve already dialed that in, and they will be ready to rebound in Q2.
ENERGY EXPLORATION and FUEL COSTS
MARK – Energy is one of the important elements that should help to restore the economy. New domestic shale oil and natural gas resources are being discovered and tapped, and the U.S. is on track to become a net energy exporter in the coming years. With increased domestic supply, energy prices will drop. Lower energy prices will boost manufacturing and add high-paying jobs across the country, accelerating growth in construction of new infrastructure.
PEGGY – I agree that new energy resources are a reason for optimism, but there is no big increase expected in the domestic supply of diesel fuel. Also, I’m concerned about the “wild card” factors. Fuel prices can shoot up suddenly when there is instability in the Mideast, increased demand for fuel in another part of the world, or uncertainty about U.S. policies that govern taxes or environmental regulations.
MARK – Well, the U.S. Department of Energy predicts that average diesel prices will drop by 10 cents compared to 2012. Plus, natural gas is becoming a viable alternative fuel that is gaining serious market share. Even if diesel prices don’t decline much, a drop in other energy costs would boost economic activity and increase demand for transportation. 
TRADE and SUPPLY CHAIN
PEGGY – I agree that changes in our domestic energy market can create opportunities. For instance, the U.S. is the “Saudi Arabia of coal” and coal is the primary energy source in Europe. While we are shutting down our own coal-fired energy plants, we have begun shipping our coal to Europe. Our coal is now price-competitive even after the transportation cost.
MARK – Other export opportunities are emerging, too. Mexico is a major trading partner, and it had 6% GDP growth in 2012. U.S. businesses are establishing facilities there now. Mexico is investing in highways and other infrastructure, and it is well positioned to absorb U.S. goods as well as to bolster the growth of U.S. businesses with near-sourced manufacturing capacity and logistics support.
PEGGY – There seems to be some concern among carriers about Mexican trucking companies operating in the U.S. What is your take on that?
MARK – A few Mexican trucks are crossing into the U.S., but most freight is still transferred at the border, in Southern California, Arizona, New Mexico and Texas. We expect an increase in van, flatbed and specialty freight, in addition to the usual reefer traffic, with growing volume in both directions. In fact, some of the largest trucking companies in the U.S. are ramping up their operations in Mexico, positioning trucks, warehouses and other facilities at sea ports and manufacturing centers.
PEGGY – Will the expansion of the Panama Canal change our relationship with Mexico?
MARK – I think trade with Mexico will continue to grow. The Panama Canal expansion will open additional opportunities on the Gulf Coast there as well as in the U.S., especially Houston. In the next two years we will also see construction and dredging at key East Coast ports, to prepare for increased traffic through Panama. By 2015, more freight from Asia will bypass California altogether, going through the Canal to ports on the Gulf or Atlantic, and continuing on to big U.S. population centers in the Midwest and on the East Coast.
EMOTION and CONSUMER SPENDING
PEGGY – You mentioned income taxes earlier, but we didn’t discuss other tax issues. We all got a 2% cut in our take-home pay, starting January 1, due to the payroll tax increase. Lots of people with employer-paid health insurance are going to have to pay more for their benefits now, too. Seeing a smaller number on the paycheck can be a shock. I think people will spend less on non-essential items this year, including luxury goods, restaurant meals and vacation trips.
MARK – Well, we thought consumers would be cautious about spending during the Christmas season, but instead they spent 4.7% more in December 2012 than they did in December 2011, and retail sales for the whole year were up 5.2%. It looks like people were tired of hearing about recessions and unemployment, fiscal cliffs, debt ceilings and disasters. They were ready to spend some serious money.
PEGGY – But the National Retail Federation just released a report today that said holiday sales rose only 3% compared to 2011. On the other hand, the same report also said that online sales — or “non-store sales” — were up 11%. Why don’t they include those sales in the total? That’s just silly.
MARK – We have seen that online shopping has taken off — and there was also a 13% surge in sales of new cars, to the highest level in five years. That may not be part of the NRF totals, either. Here’s the take-away: we had strong sales for the same period in 2011, but we topped those figures this year despite all the uncertainty.
What do you think? Please join the conversation, by adding your comments below.
Want more information? For lane-specific benchmarking and forecasting data on freight rates, consult DAT Truckload Rate Index. For a weekly summary of spot market freight trends, read DAT Trendlines and DAT Truckload Trends.
