Q&A – The Economic Recovery

By | August 20, 2020

After the first session of FTR Engage, our virtual speaking series running from August through December 2020, we sat down with the FTR Experts to answer listener questions beyond what was covered during the scheduled Q&A segments. The first session was The Economic Recovery and all Q&A in this transcription follows that theme.

Listen to the full discussion on the State of Freight Podcast or read below for the fully transcribed Q&A.

Table of Contents:

  • Q1: Forecasting Confidence
  • Q2: Trucking Spot Market vs The General Economy
  • Q3: ISM Data & Government Stimulus
  • Q4: Government Funding & Small Businesses
  • Q5: Consumer Spending
  • Q6: Jobs & Unemployment Impacts on Q3 & Q4
  • Q7: Seasonal Behavior & Adjustments
  • Q8: Election Impacts on The Economy
  • Q9: Infrastructure Bill
  • Q10: Long Term & Demand Destruction
  • Q11: Final Thoughts

DISCLAIMER: This text was automatically transcribed from an audio recording and may include typographic, grammatical, and contextual errors that differ from the speaker’s intention.

QUESTION 1: Forecasting Confidence

Eric Starks: Bill, I want to start with you and maybe we’re going to recap just a tad bit of some of the stuff that happened during this session. How confident are you about your forecasts? And can you help add a little bit of color to what are some of the things that you’re paying attention to right now to help you better understand direction?

Bill Witte: Well, in terms of confidence about the forecast, I’m reasonably confident about some of the broad characteristics. For instance, we knew the second quarter was going to be bad and it was, actually a little worse than we expected. We know that the third quarter is going to be a big improvement over the second quarter. So it’s going to be a positive quarter and probably a record. Almost certainly a record positive in terms of the jump in GDP. But in terms of any of the details, whether that jump is 10 percent or 15 percent or 30 percent, it’s really very hard to say. And the thing that makes it hardest, I think, is that the economy is still being driven by the course of the pandemic, by what happens with the virus. We’ve had a big surge. We closed the economy down completely at the beginning. Then we opened it back up at least partway, and we had a resurgence. And it’s closing down part a little bit, but not everywhere. And we really just don’t know. At least I don’t know where the virus is going to go from here. If the recent surge we’ve seen continues or even gets worse, then things will look a lot grimmer. On the other hand, if the recent deceleration we’ve seen continues and continues in a big way, then the outlook is going to be more positive. But I don’t think anybody has a handle on that. So in terms of my confidence, I’m not real confident about where things go from here.

Eric Starks: Ok, so then what are some of the underlying things that you’re paying attention to?  I mean, you highlighted some of this during the session. Are there other things that you’re paying attention to right now, Bill, to help you understand what’s happened in the short term?

Bill Witte: Well, I think that a lot of how the economy ends up reacting to the virus depends on how people respond to the virus. So I’m paying attention in economic terms to things like consumer sentiment and sentiment indicators like the Institute for Supply Management Indices, which indicate how businesses feel about their prospects in the near term. And I’m looking at the indicators of how the consumer feels in terms of their actual behavior.  So things like retail sales and things related to housing and housing demand and sales and housing starts and things like that. Now, the problem with those two is that they’re not really coincident. Indicators are lagging indicators in a lot of ways in terms of getting a feel on what’s actually happening right now. A lot of the things related to freight are things that should be watched and particularly the real short term ones, the things that come out every week in terms of freight traffic that changes with the economy. So those are good things to watch.

QUESTION 2: Trucking Spot Market vs The General Economy

Eric Starks: So, you brought up ISM. I’m going to circle back to that. But before we do that, Clay, I know that we’ve been getting some updated data that continues to come out on a daily basis for trucking specifically right now, and some of the truckers are feeling a lot better about things and that things are a lot tighter when it comes to capacity. How do you reconcile what you’re seeing in the general economy and what we’re talking about here today and what’s happening within that transportation market, specifically the spot market share?

Clayton Slaughter: Sure, Eric, I think that the way that people need to look at that when we talk about the broad sweeping strokes of the national economy versus the individual trucker or the carrier who’s saying, well, I’m doing a lot better than that, is to acknowledge that there are modal differences in the folks who are listening. Those who are in rail, are probably going to feel very different than the folks who are in a driving a fleet today. But also it’s about what are you hauling.  What is the commodity that you’re hauling and where are you located? Your location has a lot to do with it. Are you someplace that, if you look at our heat maps, is just middle of the road?  Or are you somewhere where you look at the map and you say, wow, it’s really exploding here, things are looking great. Or are you in one of those states that are still left in the color, you know, the dark blue, as things are so hot here and you could be hauling the same thing with the same equipment somewhere else in the country and feel very differently. And I think that is what we’ve warned about since the beginning. That this isn’t going to be a national recovery in terms of how it feels. It’s going to be fits and starts. Some regions are going to do better than others. Some pieces of equipment or mode types are going to do better than others. And that’s going to give people a different sentiment. And I agree with what Bill said, how people feel about it is going to drive a lot of how the recovery, you know the trajectory that it takes and whether or not you feel like things are going well or they’re not.

QUESTION 3: ISM Data & Government Stimulus

Eric Starks: You know what’s fascinating, we’ve talked about this concept of ‘this is how I feel’. Right? Because I was talking about that the last time when we were together. I feel a certain way, but what we find is that doesn’t necessarily always translate into actually what happens. So, Bill, I’m going to bring you back about the ISM data, because the ISM data is sitting, what probably around fifty-four is roughly the level it’s been sitting at. Anything above fifty suggests that manufacturing is expanding, but that is a survey of what those expectations are and how purchase managers are kind of feeling about the market and what they’re seeing. And they’re trying to quantify that. So is fifty-four a good number? Is it a bad number? I mean, we’ve seen a huge downturn.

Bill Witte: Well, it’s certainly better than, say, forty-eight or forty-nine where we were in the manufacturing side at least a couple of months ago. I think the problem there is that it says that the economy is improving, but improving off a very, very, very low base doesn’t mean that things are really roaring. So whereas six months ago, a reading of fifty-five in an economy that was already doing pretty well, means that things are really great, we’re doing well and they’re going to get still better not we’re doing lousy. We just came off the worst quarter by almost a full order of magnitude in our history.  And so things are getting better. Well, Duh! You know, they have to get better unless we’re headed for zero. So, I’m taking those numbers with a grain of salt, on the other hand, if they started to turn down, that would be a really bad indicator if they dropped again, back down to right around fifty, saying that the economy was not really expanding from where we are, that really is a troublesome thing.

Eric Starks: You know, I’m with you. And generally, the way I’ve been kind of looking at something like the ISM data is we really need to see something in the high sixties to maybe seventy to get back to kind of some of the stuff that we really lost because of fifty-four number is just saying, yeah, we’re growing, but not very strong. And it’s fascinating to see all the different data points that are out there. One of the pieces of data that came out since we actually talked at the Engage session is the inventories that came out. And what was seen in the data is we saw a huge spike in the inventory to sales ratio and then that thing, it just collapsed and collapsed in this case as good, meaning that if you have a low inventory to sales ratio number, then you have pent up demand in the economy to replenish that that inventory. And where we’re seeing that drop in inventory is really in the retail sector. We’ve seen it in manufacturing, but retail is very, very low. How are you viewing inventory, Bill, as part of the cycle over the next few months?

Bill Witte: Well, I think, you know, two things. One is that inventories always fluctuate a lot and sometimes that means something and sometimes it doesn’t. So I tend not to try and sell a lot of stories. I do think that what you said about retail is interesting. And I think that retail in itself is a really problematic area right now for a couple of reasons. One is that we’ve had huge stimulus and that stimulus has a lot of it been in the form of government income support, both the twelve hundred dollar checks and also the enhanced unemployment benefits as things stand now, both of those have run their course. Congress has been trying to work very unsuccessfully so far on sort of a second round of that stuff. But I’m frankly, at this point, not holding my breath so that source of stimulus has been running down at the same time, you know. The impact of this downturn in terms of the people affected has clearly been much more on the people at the lower end of the spectrum rather than the people further up the ladder. But if you look at retail sales and spending in the economy and particularly on things like autos and appliances and stuff like that, that’s done mostly by people farther up the ladder. So while you might see some, you know, the income base might look like it’s evaporating where the people can spend, things probably are looking better. And those people are still in the game. Most of them still have their jobs. They’ve been working from home maybe, and not spending and they’re spending pattern may have changed. They’re not spending as much on expensive restaurants or any kind of restaurants. They’re spending more on other stuff. But they’re in the position to spend. How that all sorts out is problematic. And it’s something we don’t have experience with. So many aspects of this downturn and this whole episode are things without precedent. So we’re sort of flying blind. Not sort of. We’re flying blind or in the clouds.

Eric Starks: Clay, let’s get your thoughts on that.

Clayton Slaughter: Sure, Eric, I think that the great mental picture for folks to think about this when we talk about things like what is inventory to sales ratios mean for us? And Bill talks about the stimulus that’s been injected into the economy is if you think of the economy as a kid learning to ride the bike, what we’ve done for the last few months is they’ve ridden the bike with the federal government holding onto the seat and now they’re going to let go of the seat. And that’s really where we are. And the question is, does it wobble and they take off or does it wobble and they fall down? And I think that’s what we’re waiting to see. And for some folks, they already knew how to ride a bike and they were in a better financial position but the federal government grabbed hold of their seat anyway and helped them along. And for other folks, it was much needed. And the question is going to be what happens to the folks who the federal government acted in that capacity and held that seat to steady them as they went for the last few months and now they’re going to let go? Is it the wobble and crash? Is it wobble and take off and pedal? And I think that’s really where we are.

Eric Starks: So what happens when they stop holding on to the seat? How do you see that playing out?

Clayton Slaughter: Well, I think and let me answer that question in the most lawyerly way that I can. It depends. The best way to say, I think that you’re going to see a different response. I think that they’re going to be more selective in the folks that they hold onto the seat again. I do think there’ll be another round of stimulus of some kind, but I think they’re going to say, well, these folks over here can successfully ride a bike. Look, they’ve taken off, whether that’s a particular group of people based on the economic situation or that particular group of businesses based on the fact that they took off and pedaled and then the folks who do wobble and either crash hopefully, would not get to that point, but wobble. They’re going to reach out and grab a hold of that seat again, the same as you would if you were following along behind the kid learning to ride a bike. And I think you’ll see a second stimulus package that is smaller and more focused, hopefully, on the folks that are still needing it and they’re still wobbling.

QUESTION 4: Government Funding & Small Businesses

Eric Starks: Now that we’ve talked just a little bit about some of the aspects of government funding, since you have things like the PPP to help the small businesses, how do you see the small businesses faring as we continue to move through this restart? Are the concerns about managing rising costs? How does that look? Maybe it’s not even rising costs. Maybe it’s just that cost and revenues start matching up.

Clayton Slaughter: Again, I think that this story is one of not everything is equal. It’s not you can’t paint with one size fits all brush. You know, there are some small businesses that were staged already to try to capitalize on the working home environment, to capitalize on a digital environment. You know, they were prepared for the online marketplace. And they some of them, some folks that we know, you know, when you think anecdotally have done well, they really have their business model has changed. I’m not saying it’s not painful, but they have adapted. They haven’t seen a huge dip in their income. They’ve had some capital expenses to make those changes. But it’s back to what I said in my remarks with the Engage. It’s accelerating change. It is a change they would have had gone through anyway. Most likely only they’ve gone through it in a very short period of time. There’s going to be other folks who weren’t prepared to make that change, didn’t want to make that change. Some of them are refusing to make that change or there are some who just can’t make that change. They’re in an industry, a service industry in particular, where you can’t do that and you’re going to see them be hard hit. And I fear that some of those folks will. And I’ve talked extensively about service industry folks in restaurants in particular who you’re going to see folks closing their doors. They just can’t have made it through something this dramatic.

QUESTION 5: Consumer Spending

Eric Starks: So some of the things that so this there’s a lot of stuff that kind of bounces off of this, obviously trying to understand what the spending looked like by the consumer and where do they put their money? Small businesses, one area that clearly got hit early and it continues to be hit in a lot of cases, depending on what it is at the service that they’re that provided you had some that had the wherewithal to be able to save that. Was that savings going up, in essence, because of the government giving out money, or was it more dependent upon situations or however you kind of view in that part of the savings?

Bill Witte: I think it was a combination of both. If you look at the level of income, income was elevated. Income is significantly higher than it was a year ago, which is been pre-pandemic, of course. And that elevation comes from the transfer payments that the government is making. Wages and salaries have held up may be better than you would have expected, but they are up. But transfer payments are up.  At the same time, some of the savings is coming from the fact that consumption was low in the second quarter and particularly consumption on services or things like restaurants that Clay was just mentioning. And also spending on health care was significantly reduced, even though the pandemic is a health event, but also other kinds of health care were significantly restricted. Something will probably pay for both with payments, dollars, and also in terms of health outcomes in the future. So I think it’s both sides there. But I think that that that that in terms of what I said in my first discussion.  That higher saving is certainly not equally distributed against people that were laid off and that we’re living right on the edge, probably are still living right on the edge, and they’re not the ones that have that pile of savings. It’s people farther up the ladder. And so that says I’m looking ahead.  But again, you know, if what you really want is for the economy to come back to something like what it was, which includes spending on things like particularly eating out and going out and traveling and having business travel resume. That depends on the confidence thing and particularly on how confident people are that they’re not going to go out and turn right around and get the virus if they haven’t already been infected. And I don’t know, the people I talked to know would have most of them don’t have much confidence in that regard. They’re still psychologically in hunker down mode.

Clayton Slaughter: And I would agree with Bill, my caveat here would be, though, that, as I said, businesses are sheltering in place and how much uncertainty can I take. And I think that’s in the short term. I think that’s what to look at. In the long term, though, I think they’re going to be fundamental shifts in things like business travel. We’ve demonstrated that folks can talk on a zoom meeting, a virtual meeting of whatever platform you use in meeting Microsoft teams and you can get things done. Do I have to travel? I would say that there were folks, in fact, I’m certain there are folks, some of them who I know who would have said, yes, I must travel, I must physically go be in the same room with these people to close the deal. And I think you’ve demonstrated in the last six months that’s not the case. You know, the folks who have said, I don’t really have to do this anymore, I can make it work in a virtual environment. I do think there will be some return to business travel, but I think that things are going to change long term. I don’t know that they’ll ever return to where they were.

Eric Starks: You know, what’s fascinating about that is we have been in our business at a point where we’re like, yes, the travel is needed. And what we would find sometimes we would want to go visit a customer or some locations and you get there and you only are able to see a fraction of the people that you need to see. And now today I can get everybody on the same video call and nobody has to do anything but get up, crawl out of bed and turn on their video chat. And if they haven’t taken a shower, put a baseball cap on all as well. And that’s the norm. And that that has fundamentally changed how we’re doing business. And I’m totally with you, Clay, I think that has changed how people are willing to conduct business. And I think that fundamental changes are there. So let me ask then some stuff about jobs because we’re talking just a little bit about jobs.

QUESTION 6: Jobs & Unemployment Impacts on Q3 & Q4

Eric Starks: So we already talked about this and you talked about it during the Engage session. But I want to go just a little bit deeper as we start looking into Q3 and Q4. One of the things that I’ve been paying attention to is anecdotally for me, I’ve been seeing and talking to people who I thought never would lose a job. They weren’t in the traditional stuff from a COVID standpoint that you would lose the job. Now we’re starting to see some of those jobs disappearing and some of those are really high paying jobs that it started to now morph. So I think potentially we’re seeing some changes in who is getting laid off and what that structurally means. Is this something that’s a concern?  Let’s start with you, Bill, as we move in through the third quarter and into the fourth quarter, or does this how is this playing?

Bill Witte: I become more pessimistic about the outlook for jobs in the economy. I think that at the macro level, we’re going to see more progress than I once thought, and I think the reason is that while a lot of people are going to be going back to jobs, it’s because of the kinds of things you were just talking about, and Clay was just talking about, things that are going to permanently change. A lot of the people aren’t going to be able to go back to their old jobs, which will slow down progress in restoring employment to anything like what it was. And then at the same time, I think you’re starting to see now that this revealed that the people that may be permanently in problem and having trouble with their old job, the companies that they work for, end up beginning to realize that. And you’re starting to see sort of not exactly a second round, but a first realization that the pandemic has really changed things. For instance, big layoffs in areas like the aircraft industry, which hadn’t materialized until the last month or so, a couple of months. But those are going to be long term. And I think we’re going to see more of that and parts of the retail and hospitality industries where they may be trying to hold on to people thinking that, well, once this virus blows by, things will come back and they’re beginning to realize maybe they won’t come back. And so you’re getting layoffs like that at the same time that a lot of people will be going back to work. You’re going to see things that slow it down because other people are going to be losing jobs that had them at this point. So I think it’s going to take a long time to get back to anything like the kind of a labor market, if anything at all, like the labor market we had six months ago.

Eric Starks: Clay, are you sharing that kind of feeling with how we are seeing the market?

Clayton Slaughter: So I agree with Bill at some level about jobs changing and the pessimism that things are not going to be what they once were, but I am optimistic that for the folks who want to and I hate to use the word reinvent, but I think that’s really what it is. The folks who can say what can my job look like, what can my business look like and grab a hold of that accelerated change. And I know accelerate change will be difficult, but I think that’s where we are. I think that there will be new jobs that will materialize. I think there will be a change in some business needs and there are going to be places you look at now when you look at parcel delivery and it’s grown rapidly lately. Well, why? That’s because we’re all ordering boxes and having them shipped to our house. So there are places where there’s hiring. It just may not be where it was before. And I think you’re going to see some of those shifts. But I do think there’s going to be folks who are going to lose out on that. And the question of are we going to have the same number of jobs that we had before? I probably with Bill on that, that it’s probably not going to be as high.

QUESTION 7: Seasonal Behavior & Adjustments

Eric Starks: One of the things we do know that’s kind of happened this time is that seasonality well, sorry, seasonality has just blown things up. That’s it. We’re not seeing seasonal behavior like we did traditionally as we moved through the late first quarter, second quarter, early third quarter. So, Bill, if we start looking at the seasonal versus non-seasonal adjustments in employment data, specifically, does that have an impact right now on what you’re seeing and how you kind of view and view in the market? How should we be reading this with the seasonals?

Bill Witte: That’s a good question. The seasonal adjustment process is the thing that makes sense when you’ve got ordinary kinds of movements in economic series. But the way it operates, it’s a multiplicative thing. And so when you have movements in the economy that are an order of magnitude more than what we normally get, it magnifies those even more and the magnification can be significant. And that in general,over the period that the pandemic has been affecting the labor market and things like the weekly unemployment claims numbers, the adjustments have raised those numbers not every week, but most weeks and by a significant amount. So I think that that it’s something we’re looking at at the same time. I don’t think that the trend there, the trends in terms of the changes from week to week, they’re magnified the seasonally adjusted them.  But if it’s falling, as it has been for the claims, it would still be it’s still falling in the few to ignore the seasonal adjustment. So in terms of the directions of moving things like that, it doesn’t have a big effect. If you’re trying to talk about how many people are affected like the media have been doing, that we’ve had 40 million people laid off, that kind of thing. The magnification there is something that overstates maybe what the media jumps on.

QUESTION 8: Election Impacts on The Economy

Eric Starks: Yeah, I cringe to even bring this stuff up but we’re going to have to talk a tad bit about the upcoming election. Right. Because this could have some impacts on things.  So help me understand how we should be viewing the upcoming election and its impact on the economy. And you don’t have to go too long on this, but then I’ve got some follow up stuff on this. So Clay, let’s start with you, about kind of how you’re framing this up right now?

Clayton Slaughter: Sure, Eric, it’s a subject that when people ask me this, I sort of have that cringe of all right, let’s talk about it.  I think that there are two things that I would remind folks to think about when you frame up the election and the economy. One is the process of going through the election. And I talked about this in my remarks for the Engage recording. It changes people’s behavior. There’s no way around it to the process of going through the election, changes the way that people behave and to what extent and in which direction depends on your political compass. And it depends on what you see. But I think everybody should be saying how are people’s behaviors change, because we’re going through the election. And I think more than anything, it amplifies people’s behavior patterns. Either they think things are wonderful and we’re moving in the right direction or they think things are horrible and we’re moving in the wrong direction. But I do think there’s sort of that bifurcation and split and it amplifies that as the process of going through the election. And then what happens post-election is a difficult place to put your crystal ball and say, what do you expect? And I think that there are some questions there that can be asked. If there’s a change in the White House, that’s one variable. If there’s a change in the control of the Senate, that’s another variable. And obviously, that leaves you with your play there of does one party control all of Congress without the White House? Does one party control the all three, the House, the Senate and the White House? And I think that that is something that people need to think about. None of it is a sure fire bet, and I think that they need to think of what all those options look like.

Eric Starks: And I’ll come back to one of the things you said in a moment, but Bill off of this. You know, you’re dealing with the election cycle. We’re dealing with a substantial amount of debt that is accumulating in both the state and the federal government. And even if it’s not happening at the state level right now, they’re depleting cash at a very sizable pace. What does this look like as we move to the end of the year? And does the election cycle have an impact on this?

Bill Witte: I don’t know the answer to that, and I can sort of spell out scenarios where it is and where it doesn’t. I think that if you look beyond the election. The fiscal situation that we’ve created in a way, makes things look less dangerous because if that seems most likely now, the the Democrats gain control either in the Congress or in the presidency or both. They’ll be hemmed in in terms of of how far they can shift policy from what I would consider reasonable levels at the same time. On the other side, if we have a second Trump administration, I think that he’ll be hemmed in as well. I think that the more important effects of the election are going to be the psychological ones. And I think they’re lessens my concern about the possibility of a left wing government because I think the psychology would improve with Trump gone, and I think the media reaction in particular would become more optimistic, they have a sort of, you know, the Wicked Witch is dead kind of reaction, which in the movie was pretty evolent. But this is all speculation.

QUESTION 9: Infrastructure Bill

Eric Starks: Yeah, I don’t disagree about the psychological effect on that and I think we won’t know until the election happens of how people deal with a lot of that.  So that’s one of the things, though, that’s been gnawing at me for a while, too, is we’ve been hearing that they have wanted to do an infrastructure bill for a long time, and that’s never happened. And is the infrastructure bill even possible? And if so, what circumstances would kind of need to happen to make that realistic? Because, I mean, if you look at the debt level, I mean, you’re you’re talking about adding a lot of debt into the system to put a stimulus bill through. So, Clay, how are you kind of viewing that stimulus? Because I just don’t think it would have an impact until at least late next year at the earliest.

Clayton Slaughter: Yeah, I agree that if you had an infrastructure bill, you’re going to see a delay in the benefit that’s going to come from that in terms of dollars spent. And I think that I think you could say it’d be too little, too late. But I think that the other thing to consider is the fact that it’s been made pretty clear that when we say infrastructure bill, that those that were the phrase means something very different to each party. And they’re going to have to figure out where they can meet in the middle to have an infrastructure bill that’s going to be meaningful. And I think the question would be, can we actually get a meaningful infrastructure bill that’s going to directly impact freight transportation in the near term? In the long term, I think it’s a different question. But in the near term, I just don’t see that happening. And I’m not the one who takes the pessimistic roll all that often around here. But I just can’t see that a meaningful infrastructure bill in the near term.  I think there’s too much disagreement about what it means to have an infrastructure bill. And what would we focus on? Are we focusing on bridges and roads? Are we focusing on rural Internet? Are we focusing on what is it? Is the infrastructure that we’re focusing on? Is this passenger transport? There are just so many different things that are competing priorities. And I think that that would be a huge hurdle to overcome, even without the question of are we going to see this materialize soon enough that it’s going to stimulate the economy right now?

Eric Starks: Yeah, and it’s just been interesting to see how this is played out over the last several years because just absolutely nothing has happened. And you’re absolutely right. Everybody’s seen the stimulus with regards to an infrastructure bill, in a completely different light.

QUESTION 10: Long Term & Demand Destruction

Eric Starks: Bill, it’s been interesting to read through all the different questions that we were not able to get through when people submitted stuff for the Engage session. Most everything is about the near term and nobody seems to be really thinking about the longer-term where things could go. How do you plan to do that if everything is of the here and now? And it completely makes sense. But one of the things that people are kind of asking about is let’s look at that risk assessment of the here and now. Right. What happens if we get something that is above 20 percent GDP, for example, in Q3? Are those things that can fundamentally change this recovery or not?

Bill Witte: I don’t think so, I think that that country is going to be a good quarter, it’s going to repair some of the damage, but only some of the damage to get anything that was really meaningful, we wouldn’t have to get 20 percent. We have to get more like a 50 percent increase. And that is simply not in the cards. And with twenty, twenty-five, fifteen, it’s going to be a good quarter. It’s going to indicate that the economy clearly has bounced off the bottom. The real questions are more of what happens in the fourth quarter and the first quarter of next year. And both of those are going to be affected by the election outcome to some extent, particularly in the first quarter of next year. But at this point, I think that’s where the real risks lie. If if we see the economy, say, going from twenty percent in the third quarter to five percent in the fourth quarter and then four percent or something in the first quarter of next year, it’s going to be a real long, slow slog to get back to where anything like where we were, even with the kinds of changes that Clay has been talking about. On the other hand, if we follow 20 percent with 15 percent and then 12 percent, that says we’re going to be making real progress and the recovery might be shorter term than what we think. And we’ll be in a position if those kinds of numbers come by the middle of next year to start to really think seriously about what are the long run ramifications of this whole awful episode.

Eric Starks: Yeah, you know, it was really fascinating when you showed your forecast in GDP dollars, right. Rather than look at the percent change, because if you look at the percent change, the percent change looks fantastic from here going forward. Right. You’ve got twenty percent in Q3, and then you’re in the high single digits going all the way out until you can see. But there was a clear demand destruction there that you never get back to those levels that you initially had been forecasting just six months ago. And it is it’s fascinating to see how that ripple effect is there. And can we get the sense I get is that a lot of people are maybe it’s hoping that we get back to what we would have considered normal growth and that would be back to those higher levels that you had in your forecast. So do you have something to say off of that Bill?

Bill Witte: Well, I think that’s right. And I’ve been getting a little bit less optimistic about that in the sense that what’s happened in the last couple of months has led me to think that it’s going to take us longer to get back and the extent to which we get all the way back. I’ve always thought that we wouldn’t get it all the way back to the old-growth path, but we could get back to the old-growth path rates, but we’d be running on a lower trajectory. And I think now I see that my model thinks that lower growth trajectory will be at a lower level than I thought, say, two or three months ago. So that’s a reflection of the fact that I think that the long term damage that this episode is doing and the type of permanent changes we’re going to see are going to be difficult to bring about. And I think the biggest part of the long term damage is going to be to people that are right now in their safe 50s somewhere and have really been had their careers disrupted. And they may never recover and they may drop out. I think one of the features of the long run is going to be the labor force is going to be reduced. And that’s going to be a reflection of people whose whole lifestyle has been permanently disrupted in a way that they can’t restore. That’s going to be the biggest human tragedy of this whole thing.

Clayton Slaughter: And I would add to what Bill said, that one of my concerns is that if the recovery is is slow enough, that where those two lines intersect, that we get back to where we were before is that someday we have to pay the bill on all the stimulus that we’ve put out there. And when the wind is the deficit that we’ve created become such a drag that we can’t overcome it. And that’s the important question at this point in time because you do need and most everyone agrees once that the stimulus is necessary at some level. But you want to create enough stimulus that you kick start the economy without so much that you create a millstone around the economy that you can never get over. That just anchors the economy forever or for an extended period of time. And that’s my concern. Again, I’m going to take a slightly different view than Bill’s taking. My concern is not the folks in the fifties who had their livelihood destroyed, which is I’m not minimizing that in any way. My folks are the folks who at the beginning of their career who are saying, how are we ever going to pay for all of this and how are we going to get back to where we were? And that’s a question that I don’t think any of us can answer is when will that start to affect the economy? And if so, how much?

Eric Starks: Yeah, because if you just look at the demand destruction we were talking about, you know, a lot of the things that have been done recently, before the pandemic were predicated upon a more robust economy that would then pay for itself, in essence. And now we have a huge debt load and we have an economy that’s growing below where we had initially anticipated it anyways. So it exacerbates some of the problems. And so longer-term, structurally, you’re absolutely right. The younger generations are going to have to figure out how to deal with this. But it seems like this has been an ongoing discussion for the last 20, 20 to 30, 30 years, if not longer. And we still don’t have great answers on what that looks like. So there were a bunch of questions that came in about transportation specific items. I’m going to punt on those and we’re going to cover those during our next Engage sessions. But I do want to finish up on talking about the transport sector of the overall economy because talking about the broader economy is so important right now that we have to understand that before we dig into the individual markets for trucking, rail, and intermodal, all of these types of things. So one of the things that we do when you talked about the goods transport sector as part of a component of GDP, and that number was down dramatically in the second quarter, over forty-two percent decline.  You know, but we also saw something in the magnitude of single to double-digit growth for some different areas, segments of the economy specifically, they had to do with the last mile, had to do with e-commerce, those types of things. So are those items included in the goods transport sector number that you highlight on the broader GDP scale?

Clayton Slaughter: The technical answer there is yes, they are included, but they’re not included in the way that you might think that they are in terms of what we’re measuring. We’re measuring it with GDP, that there’s a purchase that’s been purchased and it’s been moved, but not necessarily the last mile component of that. And its effect on whether or not you’re going down to the local department store and you’re purchasing it or you’re purchasing it through an E-Retailer and it’s being delivered to your door. So that’s a different level of measurement in what you’re looking at. But yes, it is included. But I don’t think it’s going to give you the rosy picture that perhaps you’re looking for.

Eric Starks: Are you seeing the same type of demand destruction that we’re seeing in the broader GDP market because we saw services get hit hard and that’s not good, right? Are you seeing the same type of demand destruction in the goods sector as we’re seeing in the broader overall economy?

Clayton Slaughter: In some areas, yes, I mean, if you see some things that the demand has dropped off for, but other things the demand has been consistent and some of them, unfortunately, have been a great demand. I mean, anybody who’s tried to go out and buy toilet paper knows that for some things there’s incredible demand and supply doesn’t match it, but for other things that demand has dropped off. Can you buy a desk today? No, trust me, I’ve been trying. You can’t buy a new desk if you want to work from home and there isn’t one to be had. But can you do other things that are goods-producing? There’s just not there’s not a demand for because it’s been disrupted. So I really think it has a lot to do with what it is you’re buying and where you’re located of what they’re moving and where they’re moving it.

Eric Starks: Yeah, and it’s interesting because I’ve been looking for a lawn and garden tractor and I have a specific one in mind and it’s yellow and green and they just don’t have them around right now. So I’m having to start looking at substitutions and things. But even then, that’s getting harder. So we’re seeing that different segments from in-home are doing fairly, fairly well. And we do have supply chain disruptions.

QUESTION 11: Final Thoughts

When we were doing the FTR Engage session, I asked the two of you to talk me off the cliff because I was feeling not so great about the economy. So with that, I would like to give you an opportunity to state something or give us some thoughts that you don’t feel like you’ve had the opportunity to communicate as part of this overall process. So, Clay, I will start with you and impart some good knowledge on us as a parting gift.

Clayton Slaughter: Well, that’s a broad canvas to let me paint on. Thanks, Eric! I think that the point that I would, and I don’t know that I haven’t covered it with the point that I would highlight for folks to say, is the most important component for me is looking at jobs and looking at the folks that are returning or not returning to the workforce because I think that that is going to be a huge driver for the sentiment. And I totally agree with Bill that I think that this is going to be sentiment driven more than anything. I do think that there will be a return on demand for a lot of things, but I think some of it’s been disrupted. And I think that’s going to be driven by the sentiment and that’s going to be driven by whether or not people have jobs and their friends and family have jobs. You know it’s one thing to have a job, but the other people around you in your social circle or your family circle are either unemployed or underemployed or talking about the potential of losing their jobs. That creates a sentiment where I’m going to hold on to my cash, I’m going to hold on to every dollar that I can. And that doesn’t incentivize me to go spend that just I’m not in the mood to go to spend money. And I think that that’s going to be the key piece that I’ll be looking at as we move forward to, say, our people returning to the workforce. And if so, who’s returning to the workforce and where are they going? Is it is it the jobs that they had before? Are they better jobs or are they just different jobs with similar to the ones that they had or they drastically underemployed? And I think that would be key for me.

Eric Starks: Ok, so, Bill, I will let you sign us off with your words of wisdom here.

Bill Witte: Thanks a lot for that. I guess that when I feel myself getting pessimistic, depressed, which is pretty easy to do these days, you know, but occasionally I’ve been with you out there on the edge of the cliff. I fall back on thinking about the type of society we are and the history we have of overcoming great difficulties. The last time we had economic difficulties like this was in the Great Depression, of course, and we came out of that winning World War Two. And I think that although I have concerns, I think that the American society can overcome almost anything and I think we’ll overcome this. I think it’s going to take a while. And I think that at the individual level, they’re going to be people that don’t overcome it, that were people that came out of the Great Depression, you know, with their lives destroyed, they’re going to be businesses, a lot of them come out of this episode essentially destroyed, put out of business. But the people that run those businesses will still be around. And a lot of them 10 years from now, even if they lose the business now, they’ll be running some other business. That’s the history of America and the government in a lot of ways has been doing its best to try and convince us that’s not the case, I think. But it’ll take a lot of convincing, I think, to change that confidence that underlies the American experience.

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