Economy rigged for take off: Analyst
NEW YORK -- The longer the downturn, the bigger the bounce back. And said bounce back, by the way, is actually on the horizon.
Those are two of the messages implicit in a just-released analysis of the North American heavy-duty truck industry.
According to Wall Street analyst John Oltesvig, who prepared the report for the Gerson Lehrman Group, heavy-duty truck sales are among the first casualties when a recession hits.
"Historically it has been demonstrated that heavy-duty truck sales go down first at the beginning of a recession and that they come back last at the end of a recession," Oltesvig writes. "That is one of the reasons that heavy-duty trucks historically have had such long and deep business cycles."
But when sales return, the pent-up demand for equipment will take off, he says. “This is due to the age of truck fleets necessitating the replacement of older rolling stock. The magnitude of the demand is driven by the length of the down cycle.
"Old trucks will cost too much to keep rolling, and new-truck depreciation will look attractive by comparison."
Oltesvig’s report was prepared for people who invest in heavy-duty truck manufacturers and by extension it gave some insight into where the trucking business is headed. It coincided with another report, this one from the head of Volvo, suggesting that the worst of the downturn is over, the rebound will start in 2010, and you shouldn’t expect any more layoffs from the Swedish vehicle company.
Oltesvig says last week's one percent up tick in the Index of leading indicators "is pretty solid evidence that the recession is beginning to wind down, since there has never been an increase of that magnitude in the history of the index without the economy being in expansion mode."
While he says it will be many months before the credit crisis will be resolved -- as long as banks remain capital-constrained -- stock prices, the interest-rate spread, consumer expectations, initial unemployment claims, the average workweek, and supplier deliveries all contributed positively to the index this month, more than offsetting the negative contributions from real money supply and building permits.
“Taken together, the behavior of the composite economic indexes suggests that the contraction in economic activity will continue in the near term, but will likely become less severe in upcoming months."
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