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A truck drives towards the United States border in Windsor, Ont. (GEOFF ROBINS/GEOFF ROBINS/THE GLOBE AND MAIL)
A truck drives towards the United States border in Windsor, Ont. (GEOFF ROBINS/GEOFF ROBINS/THE GLOBE AND MAIL)

Taking Stock

If the economic road is so bumpy, why are all those trucks on the move? Add to ...

As markets sink into a late summer funk, and commentators worry that the U.S. recovery is faltering, investors may feel like throwing themselves in front of a truck. While they're waiting by the side of the highway, though, they should consider an odd fact - there are a lot of trucks on the road for what is supposed to be a weak economy.

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The Ceridian-UCLA Pulse of Commerce Index, which measures the strength of the U.S. economy by looking at trucking activity, flashed positive last month, registering an increase that is in line with robust growth.

That positive indicator doesn't mean that a boom is ahead, but it does suggest that dire predictions of disaster should be put to one side.

"I don't think that a double dip is in the cards," said Ed Leamer, one of the most respected forecasters in the United States. A professor of economics at UCLA, Mr. Leamer is also director of the UCLA Anderson Forecast, a national prognosticator that was the first blue-chip forecaster to call the 2001 U.S. recession.

He argues that a recession is the result of major imbalances in the economy that build up over time and eventually lead to calamity when an overbuilt sector crashes back to earth. In the current situation, with U.S. housing starts and car sales still far below their peaks of years past, it's difficult to make the case that large imbalances still exist.

Housing starts, for instance, are hovering around 600,000 units a year, far below the 1.5 million or so that used to be typical. Light vehicle sales are running at a pace of about 12 million a year compared to 16 million three years ago. "It's hard to see those cyclical components declining further," Mr. Leamer said.

He likens the recent recession to a dam bursting and flooding a town. Once the disaster occurs, the dam has to be rebuilt and water must accumulate before the danger returns, all of which takes a long time.

History provides no examples of the U.S. economy falling back into recession in circumstances like the present. The 1938 recession, held up by some as an example of a double dip, occurred after five years of rebounding economic activity. The 1982 recession, which followed on the heels of the 1980 recession, was the result of what Mr. Leamer calls "wild and wooly monetary policy" that raised interest rates to double-digit rates in a bid to stamp out inflation.

Rather than slipping backward, the U.S. economy may already be growing at a faster clip than thought, according to Mr. Leamer.

He helped to design the Ceridian-UCLA index, which uses credit card transactions to measure how much diesel fuel is being purchased in the United States. Those fuel purchases closely track the amount of trucking activity on the country's highways. That activity provides an up-to-the-moment gauge of the amount of goods being shipped and, hence, economic growth.

In July, the index jumped 1.7 per cent, a figure that, according to Mr. Leamer's statistical models, would be in line with a U.S. economy surging ahead at about 5 per cent a year. He cautioned that it will take another couple of months to confirm the trend, but said the current numbers are in line with his view that the economy is growing at a reasonable rate.

Other prognosticators feel the same way, according to the Survey of Professional Forecasters conducted by the Federal Reserve Bank of Philadelphia. The survey, which tracks the outlook of 36 forecasters, finds that the pros are slightly more negative than they were a quarter ago. Still, they see no more than a 17-per-cent chance of a decline in GDP over the next year. Most believe the U.S. economy will grow between 2.6 and 3.6 per cent a year between now and 2013 - not spectacular performance, but far from a recession.

Freight rail traffic, one of the classic indicators of economic vigour, is also enjoying good gains. Carloads in July were up 4.1 per cent from a year earlier in the U.S. (and by 19 per cent in Canada).

While those economic gauges suggest the risks of a double-dip U.S. recession are small, they also indicate that growth may lag behind the rates necessary to substantially reduce U.S. joblessness. "That is the major risk going forward - that unemployment will continue to surprise in the wrong direction," Mr. Leamer said.

Still, he is confident that the U.S. recovery is going to be better than the double-dippers think. "The emotional distress caused by 2008 is still gripping us," he said. "People are nervous. Even a small news item about problems in a place like Greece is enough to make people run back to cash." His advice? Stop worrying about the flood that just happened and start thinking about the sunnier prospect that lies ahead.

Follow on Twitter: @IanMcGugan

 

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