Labbe: US economy continues growing

THE US economy is much stronger than many people believe, and it is growing at a manageable rate. These factors explain why tank truck carriers are still busy but aren't seeing the same high levels of demand that they did in 2004.

The economy should remain robust for the rest of 2005 and going into 2006, according to Martin Labbe, president of Martin Labbe Associates Inc. He cited a number of factors as proof that the US economy remains vibrant: real consumption up 3.6%, housing up 13%, machine tool purchases growing by 50%, capital goods investment by business rising by nearly 14%, industrial production up more than 5%, and after tax profits up nearly 20%.

“This is a great economy, and the consumers are the true believers,” he said. “The negative attitudes are largely the result of media spin. People are the victims of information anxiety.

“While we'll probably see slower growth, this should still be one of the best years on record. Interest rates will continue to climb with minimal disruption to the economy. The auto and housing sectors should remain near record highs.”

Labbe went on to suggest, though, that tank fleet managers should be concerned about some economic issues on the horizon. Higher shipping costs are beginning to hit hard in some industries, especially those producing bulk commodities. Exports remain critical to the US economy, and a weak exchange rate is very important. Protectionist efforts overseas could hurt.

Higher fuel costs are beginning to impact the entire US economy. “As it stands now, fuel costs seem to be a short-term negative to the economy,” Labbe said. “It translates to about $10 a week for the average consumer. About 20% of consumers are reducing consumption of goods other than fuel.”

In agriculture, higher fuel prices have increased the cost of processing food products. Fertilizer and pesticide prices have gone up. Primary goods in manufacturing are being affected most by higher fuel costs. Durable goods are likely to suffer more due to consumer malaise.

Despite the higher fuel prices, petroleum shipments should increase throughout 2005. Shipments of industrial chemicals — excluding those for the automotive sector — will be up 2%. Processed food shipments will increase. All of this will occur despite capacity shortages in the tank truck industry.

Capacity shortages are one reason labor costs are projected to grow by 15% in 2005. Insurance and regulatory compliance will add even more to fleet operating costs. Labbe added that more tank fleets will turn to self insurance.

Looking toward the future, Labbe said that now is a good time to plan for equipment costs that will increase by at least 15% with the arrival of the new diesel engines in 2007-model-year trucks. That's when the requirement for ultra low sulfur diesel fuel takes effect.

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