Economic stimulus package's effect on shippers, economy may be mixed

Jeff Berman, Senior Editor -- Logistics Management, 2/20/2008

WASHINGTON—When President George W. Bush recently passed a $168 billion economic stimulus package comprised of taxpayer rebates and business tax breaks, he said it was designed to “provide a booster shot for our economy…and put money back into the hands for American workers and businesses.”

The White House says that the stimulus will offer individual tax relief up to $600 for individuals and $1,200 for married couples (with additional rebates for children) and also provide temporary tax incentives for businesses to make investments in their companies to spur new job creation.

While it may be a good first step to get the U.S. economy—which remains stagnant due to the housing crisis and credit market issues, and low consumer spending—back on its feet, the stimulus’ potential to be more than a short-term fix is yet to be determined, according to various industry sources.

For the economic stimulus to have a meaningful impact on the U.S. economy, a good chunk of the money needs to be spent by consumers. If this is indeed what happens once the checks start being cut in the coming months, there could be a meaningful trickle-down effect for both shippers and transportation services providers, says Rick Jordon, director of global logistics services for ICG Commerce.

“If consumers do spend their rebates and the money goes back into the economy, it will undoubtedly impact things like transportation and logistics,” noted Jordon.

One reason for this, he explained, is that retail inventories and manufacturing output have both dropped with companies chipping away at existing product levels, because many retailers are carrying as little inventory as possible. He added that inventories will continue to remain low until consumers get the rebate money in their hands, at which point manufacturing output may increase as a result of increased spending.

While the stimulus is likely to provide an uptick in consumer spending, it may ultimately result in “incremental freight demand” which would be fairly short-lived, according to John G. Larkin, Stifel Nicolaus Transportation and Logistics Group managing director.

Shippers, said Larkin, should be adequately prepared for any increase in consumer spending whenever it eventually happens.

“There might be a return from [these current] depressed levels to normal levels for a brief period, which may result in shippers slightly increasing their production levels and putting more inventory in place,” he said. “And they will have enough advanced warning in regards to planning specifics to get things finalized ahead of time.”

In terms of the potential the stimulus has to provide businesses with tax incentives for things like equipment purchases that may lead to job growth, there are some good ideas out there, but more time may be needed to see any real progress on this front.

Before President Bush signed off on the package, House Transportation and Infrastructure Committee Chairman James Oberstar (D-Minn.) proposed a $15 billion package as part of the stimulus that would have created approximately 751,000 jobs on various highways, rail, and transit infrastructure projects, of which some roughly 2,500 could have work started on immediately were it not for budgetary constraints.

Jim Berard, House Transportation and Infrastructure Committee spokesperson, said that he is optimistic Oberstar’s proposal may be included in “Part 2” of the stimulus package in the future. And he told LM that allocating sufficient funding for transportation infrastructure initiatives is as crucial to helping the economy rebound as taxpayer rebates.

“You can only do so much with sending people checks,” said Berard. “There is a need out there to not just get people buying things but also making things to get people back to work.

Berard explained that there are two needs to be met through infrastructure investment: to put people back to work and money into their pockets to get the economy going again; and the other part is to produce better roads, bridges, more efficient transportation systems and better environmental infrastructure.

Stifel’s Larkin supported the concept of stimulus funding going towards infrastructure improvements, noting that it has been widely forecasted that freight volumes will eventually rebound, well before the stimulus was proposed and signed. He said the caveat is that this is assuming that the credit market crisis does not extend into the period when freight volumes eventually rebound and banks start lending again in earnest.