What Happens Next In D.C.? Who Knows?

Article by John Wagner Jr from Wagner Logistics (Published on Supply Chain Blog - 31st Jan)


The president has been sworn in for four more years, the debt ceiling crisis has been pushed back three months as Congress is tasked with coming to agreement on spending reductions and increased tax revenue through closing tax deductions by the end of March. So what happens next in Washington? I have no idea.


What we do know is that we are going to continue to see a slow 1 to 2 percent GDP growth in the first half of the year. Then, depending on which economist you listen to, the economy will speed up in the third or fourth quarter to at least 2 to 3 percent.


When the debt ceiling is mandated to be resolved at the end of March, it's possible that the government could partially shut down for a couple of weeks, closing national parks, passport offices and other noncritical governmental functions while lawmakers negotiate.


For now, it appears that the economy will hum along until that end-of-March brinkmanship game.


Inside The Numbers


The Commerce Department just reported that durable goods orders jumped 4.6 percent in December, surprising everyone. Orders were up 0.7 percent in November and the experts were only expecting a 3 percent increase.


The Federal Reserve also had positive numbers to report, saying that factory output increased 0.8 percent in December after a 1.2 percent increase in November. Auto sales jumped by 2.6 percent, computers/electronics were up 1.5 percent and primary metals surged 2.9 percent.


Durable goods sales are usually a solid indicator of future factory activity. Durable goods are defined as items expected to last three years or more. If the housing market is truly turning upward, one could reason that carpeting, air conditioners, TVs, and refrigerators will follow.


And the housing market numbers continue to be strong. The Census Bureau reported December new housing was up by almost 1 million annually, gaining 27.5 percent and making 2012 the best year since 2008. New housing starts were up 12.1 percent from November to December. Prices for existing houses continue to climb as well.


With retail sales doing well (up 0.5 percent in December and up 5 percent for the year), it looks like nice momentum going into 2013. We don't know the impact of tax increases on the spending psyche of the consumer.


We may see some of the impact soon as consumers are now receiving their 2013 paychecks and seeing that Social Security withholding alone is going to impact the average American by $1,000 a year in income. Social Security withholding returned to 6.2 percent from the temporary 4.2 percent level; many were surely shocked to see the reduction in their take-home pay.


Transportation/Logistics Issues


How does all of this affect the transportation/logistics world? It looks like continued slow economic growth will also translate to slow freight growth. Besides the fiscal cliff deferment to the end of March, the other big unknown is the results of labor negotiations in the eastern and Gulf ports.


USMX and the ILA concluded three days of negotiations with the Federal Mediation and Conciliation Service in mid-January, reporting that progress has been made and both parties have agreed to continue negotiations. The current contract is extended until midnight Feb. 6, affecting 14,500 members of the Longshoremen's Association who are seeking to lift a royalty payment on containers at their ports.


A contract between the Teamsters and UPS expires July 31, while ABF and the Teamsters continue to negotiate. ABF would like to eliminate YRC Worldwide's labor cost advantage.


With the court of appeals in Washington holding that the president's appointments to the National Labor Relations Board were unconstitutional, all matters decided by the NLRB after January 2012 are potentially invalidated. The potential ability of the NLRB to be involved in future disputes will be a hurdle the administration will have to overcome.


Truck tonnage fell 2.3 percent in December from November, according to the American Trucking Associations. Tonnage was up for the year by 2.3 percent.


TransCore is reporting a strong start in January, with shipment levels 30 percent above the first half of January 2012.


With the slow growth that is projected for the year we should see adequate capacity in the truckload market. We should also see a continued modal conversion from truck to intermodal. Will intermodal rates increase? You betcha.


For the week ending Jan. 19, intermodal volume was up 13.5 percent year over year, with 249,397 containers and trailers handled. The Association of American Railroads also reported a 3.5 percent decline in carloads in the same period.

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