MAPI economist touts jobs growth but notes economy has ways to go

Given the ongoing economic uncertainty, those in search of green shoots or any type of economic optimism, as it relates to the travails of the freight transportation and logistics sectors, likely came up short at this week’s FTR Transportation Conference in Indianapolis. 

One key theme cited throughout the conference centered on still-high inventory levels. Daniel Mecksrtroth, vice president and chief economist for MAPI, observed that the inventory-to-sales ratio still remains “well above normal,” with not enough burnt off, due to slow growth economic environment, and despite a July dip in the ratio, total production is still expected to remain slow, given the typically short nature of inventory cycles.

He likened the current inventory outlook to a “tail wagging the dog” type of situation, meaning that when inventories need to be lowered companies need to sell what they produce, which is what occurs when inventories are in balance.

“If sales are flat, production has got to go up,” he said. “That is what is going to happen. In the fourth quarter we should see rebound not only in manufacturing in the U.S. but in the general economy. GDP is 70 percent of consumer spending, and with the job growth we are seeing we have a strong consumer base, while other things are fading like commodity prices going down and drilling bottoming out, the dollar stabilizing, and the inventory swing in manufacturing.

Other major factors impacting the economy to a fair degree, according to Meckstroth, are the strong U.S. dollar, which he said should be on a flatter trajectory for the next couple of years, and a trade deficit that is getting worse, with trade growth slower than global economic activity.

“The reason we are not in a recession is due to consumers,” he explained. “It is because jobs are being created. This year, total jobs will grow 2 percent, and the economy is only going to grow 1.5 percent. Basically, we have 2 percent growth of people, which means 2 percent of people having more income, and they are spending 95 percent of that income on consumption. It’s new jobs creating new income…that’s what is growing the U.S. economy right now, even though we have negative productivity, which has been on the decline for several years.”