Shifting economic concerns as summer begins



Posted on 06/16/2017 by David Radke

Economy

For many businesses, including the trucking industry, summer may be one of the slower periods of the year. However, several major economic developments are sure to keep transportation industry professionals busy planning and strategizing, particularly when it comes to the cost of goods and services, fuel prices and employment. 

Fed raises rates again

The Federal Reserve Bank of the U.S. announced June 14 that it was once again raising the federal funds rate, which is the interest it charges on short-term loans to banks. With an increase from 1 percent to 1.25 percent, it marks the ninth year in which the economy could still be considered in "recovery mode," according to The New York Times, since lower interest rates are intended to stimulate growth.

In its announcement of the rate hike, the second one in 2017 but only the fourth in the last 18 months, Fed Chair Janet Yellen reiterated her view that the U.S. economy was still about as healthy as one could hope. 

"Our decision reflects the progress the economy has made and is expected to make," Yellen told the press, according to the New York Times. "The labor market has continued to strengthen, and GDP has been rising moderately so far this year." 

One stubborn point of contention for the Fed and U.S. economists is inflation. However, unlike typical discussions on that topic, the problem seems to be a lack of inflation, rather than an excess. As The New York Times explained, the Fed's job is to keep unemployment low and prices stable, both of which are generally true. With the unemployment rate at its lowest in almost two decades - 4.3 percent - traditional economic models would suggest inflation should be rising, too. But inflation is not reaching the Fed's traditional target of 2 percent per year, and as of June 14, it stood at only 1.5 percent.

This low level of inflation is good news for consumers because it means the price of most household goods isn't much higher than prior years. But low inflation is also a sign that there is not enough money flowing through the U.S. economy, perhaps because workers are not seeing significant pay increases, or due to an excess of consumer goods.

For the trucking industry in particular, a low inflation environment could signal a weakness in international trade, or higher costs for borrowing money through loans.

Oil prices stay low

One category of spending that is not rolled into most inflation projections is the cost of fuel, including gasoline and diesel. On the heels of the Fed rate hike, this was another measure that showed surprising weakness. Thanks to ramped up domestic production and cutbacks from overseas producers, U.S. motorists and professional drivers can expect some of the lowest gas prices this summer since 2005, according to GasBuddy.com. As of June 15, GasBuddy reported the national average gas price to be around $2.29 per gallon. While this was only two cents greater than the national average at the same time last year, it had seen fluctuations near $2.50 just two months earlier.

Average diesel prices also remained relatively unchanged from a year ago, but still very low historically. The U.S. Energy Information Administration reported that the U.S. average cost for all diesel fuel types sat at $2.52 per gallon as of June 12. 

It's worth noting that even minor price fluctuations can have a big effect on what consumers and businesses cumulatively pay. The New York Times explained that with a typical consumption of 400 million gallons of gasoline per day, a single cent increase or decrease adds up to a total difference of about $4 million.

Brought to you by Lee TranServices, transportation experts providing you peace of mind and increased profitability.

Posted in  Fuel Tax | Bookmark the permalink.

 

← FMCSA proposes 2 rules that could make obtaining a CDL easier for some people

Amazon buys Whole Foods, shakes up retail space →

Lee Tran Services, Inc. © All Rights Reserved