Sunday, June 29, 2008


Truck tonnage rises in May

The American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index increased on a month-to-month basis for the first time since January of this year, edging 0.5 percent higher in May. April’s tonnage reading fell a revised 0.6 percent instead of the previously reported 1.1 percent drop.

The seasonally adjusted tonnage index equaled 114.8 (2000 = 100) in May. The not seasonally adjusted index increased 1.1 percent to 118.3 from 117.1 in April.

The seasonally adjusted index was 3.3 percent higher compared with May 2007, marking the seventh consecutive year-over-year increase. In April, the year-over-year gain was 2.2 percent.

ATA Chief Economist Bob Costello said that May’s tonnage reading represents a positive step forward, but noted that freight volumes remain mixed across the industry amid continuously rising fuel prices and a weak economy.

“The fact that tonnage increased on a month-to-month basis for the first time in four months, as well as achieving its largest year-over-year gain since February of this year, is quite positive,” Costello said. “However, year-over-year comparisons continue to reflect the weakness of 2007 rather than robust growth in 2008.”

High diesel fuel prices continue to place a significant burden on motor carriers, he said. “Rising fuel prices are a double-edged sword for the industry,” Costello said. “Since trucks haul virtually all consumer goods at some point in the supply chain, the industry is significantly impacted both directly through high diesel prices and indirectly as consumers have less money to spend on truck-transported goods.”

May 2008 truck tonnage

Truck tonnage seems to have been moving in a range with a flat trend the last four years. I am surprised that the decline in automotive and housing related shipments is not having more of an impact (automotive related shipments alone are about 8% of total tonnage). Less than Truckload Carriers have been reporting drops in shipments the past few months, auto production is falling to 16 year lows, housing starts are at 17 year lows, supposedly massive amounts of freight is moving from trucks to trains, but truckload tonnage is back up to where it was in May 2006.

Sometimes you just wonder

The Bush Administration is blocking new solar projects........

(wait for it)

(wait for it)

....because they're so concerned about the environment they want to do an extended review.

We've got an energy crisis. We've got the money we're sending over to OPEC being passed on to Iraq where it is used to blow up the people and stuff we send to Iraq (talk about funding both sides of a war). I guess "there's a war on" only carries water for the administration when it comes to finding new and creative ways to spy on us.

Saturday, June 28, 2008

A Price/Asset Deflation Spiral?

In the 1970s inflation in the U.S. reached dizzying levels amidst a falling Dollar, an easy Fed, Soaring Oil Prices, and the infamous "Wage/Price Spiral". Many commentators see the U.S. headed for another inflation catastrophe.

Paul McCulley says this isn't the 70s and that isn't necessarily good news.

But, you retort, if the Fed surrenders to negative real interest rates, it will set off an inflationary spiral, as second and third round effects on prices and wages take hold: capital and labor will extrapolate what should be viewed as a transitorily higher inflation into permanently higher inflation. In a world of perfectly indexed prices and wages, this could well be the case. The 1970s resembled such a world, and nasty oil price shocks that should have been one-off adjustments in the price level via temporarily higher inflation morphed into a price-wage-price inflationary spiral.

In monetary policy terminology, inflation expectations in the 1970s were not firmly anchored at the pre-oil price shock level. This is true, I think, but more elementally, the highly unionized, closed-economy structure of the American economy price and wage setting process was inherently geared to transforming a one-off inflationary shock into an enduring inflationary shock.

We no longer live in such a world. Most importantly, wage inflation is now only loosely connected to price inflation, in the wake of a more globally competitive, less unionized labor force. As Vice Chairman Kohn hinted, the combination of somewhat higher inflation and higher unemployment is a prescription for diminished pricing power by labor, leading to lower real wages (than would be dictated by labor’s productivity growth). Thus, unlike the 1970s, there is little wage fuel to generate over-heating aggregate demand and, thus, a sustained price-wage-price inflationary spiral.

This is good news indeed. Fed officials would make this argument through the lens of well-anchored inflationary expectations, and I have no quarrel with that interpretation, though I think it is but a veil over a more global, more competitive, less oligopolistic price and wage setting structure in the United States. Indeed, I believe the more nasty is the negative terms of trade shock, the fatter is the fat tail of asset price deflation rather than the fat tail of accelerating goods and services inflation.

Deflating asset prices in a highly levered economy are a much more nefarious outcome than temporary increases in inflation in goods and services. This is particularly the case from a starting point of low inflation in goods and services (excluding those involved in the negative terms of trade shock). How so? Simple: a negative terms of trade shock and asset price deflation are a prescription for not just a recession, but a nasty one. More to the point, from a starting point of low goods and services inflation, the Fed is never far from the zero lower limit on nominal short-term interest rates, commonly known as a liquidity trap.

Therefore, the more flexible are wages in the face of a negative terms of trade shock, particularly if it coincides with asset price deflation, the greater is the risk of policy makers losing control of the economy on the downside. In turn, this reality argues for the Fed to tolerate higher headline inflation in the wake of a negative terms of trade shock.

In the 1970s many more of the U.S.'s workers were unionized, and unions were negotiating pay increases, not pay cuts.

Today, workers are much less likely to be unionized and lack the pricing power to get wage increases that keep up with increasing food and energy costs. Indeed, workers have been losing ground on real* wages for years. (*real=adjusted for inflation, nominal=the numerical amount, for example a salary of $300/week is the same nominally in 1930 and 2000, but much less in real terms). Workers are going to have to consume less. This is going to limit inflation in food and energy as demand falls for both. That's the good news. The bad news is that this is also going to lower demand for houses, which are already losing value, as well as increase foreclosures. Many people in the "bubble markets" on the coast and in the worst off parts of the rust belt already owe more on their mortgage than their home is worth. This time rising food and energy prices may not show up in rising wages, but rather in falling home prices.