Finding the Money: Long and Short Term Views from FedEx’s Chief Economist
During the NDTA-USTRANSCOM Fall Meeting, Dr. Tim Mullaly, Chief Economist, FedEx, provided a keynote address to the audience. He likened being an economist as similar to being a weatherman. Your job is to surveil the world around you to tell others how the “storm” is tracking and where it will hit. His speech gave Fall Meeting attendees both short- and long-term forecasts for the US economy.
By the numbers
The US economy is currently growing at 2.3 percent. This number is down from last year’s growth rate of 2.9 percent, which was the fastest growth seen within the current business cycle. The economy is expected to slow down even more next year to 1.8 percent, just below trend growth rate. Growth, according to Mullaly, allows us to determine what resources we have at our disposal—including in transportation.
Consumer versus industrial spending
The big story in this economy, said Mullaly, was the divergence between the consumer economy and the industrial side of the economy. The consumer side is doing well and is expected to continue its growth, while the industrial side is expected to slow greatly this year.
Why is this happening? US consumers are in a good place. Unemployment stands at a 50-year low, wages are rising, and consumers feel confident in their job prospects.
Businesses, on the other hand, are facing a lot of uncertainty—especially around trade policy. That uncertainty has led to a decline in investments, which translates into cuts in industrial production.
A structural slowdown
The US economy is structurally slowing down, said Mullaly, adding that estimates call for sub-two percent growth. The two overwhelming factors causing this are productivity and the labor force.
Productivity growth and output per hour have slowed, as has labor force growth. The labor force slowing is a result of both baby boomer retirements and lower birth rates. Unfortunately, when a labor force is not growing, productivity becomes that much more important to growth. And unfortunately, the aggregate of these factors can be felt society-wide as less availability of resources and investments.
“What determines the long-run are the decisions we make in the short run,” said Mullaly.
Gross Domestic Product (GDP)
Consumption has increased, while investments and government spending have decreased. Looking simply at the numbers, some may argue that government spending has increased, but much of government spending is on transfer payments. These payments are for things such as entitlements, which primarily enter the economy as consumer spending.
The US debt to GDP ratio of 106 percent is high compared to other G7 countries. This ratio is expected to rise, which will make it an even greater challenge to get the resources necessary to invest in US infrastructure. There are no easy answers for this, but economic growth would make this easier.
Mullaly emphasized the need for the US to remain open and to be a champion for free trade. Trade, he said, increases productivity and going back on trade is like using outdated technology.
Throughout his comments, Mullaly touched on the need for the government to invest in infrastructure. He ended by also emphasizing the need for the government to invest in Research and Development (R&D). Government R&D has been instrumental in driving innovation and this is something that must continue.