Economy: The Damage Spreads

When the Federal Reserve cut U.S. interest rates half a percentage point last week, setting off a new downward spiral for the stock market, the problem was not just that the Fed had disappointed widespread hopes for a bigger rate cut.

The more basic problem was one that will threaten the health of truck carriers and equipment manufacturers for many months to come: The damage from this economic slump is still spreading.

There was already plenty of evidence of this before the Fed acted March 20. The evidence kept rolling in the rest of the week.

It will take a while for after-the-fact statistics to tell us if we have been in a recession, but it only takes a look back at headlines from last week to know that considerable pain is throbbing through the economy.

ven before the Fed cut rates for the third time this year, numerous companies had warned that their quarterly earnings would be worse than expected and that more cuts would be needed in manufacturing output and in jobs.

Such announcements tell us in the short run that affected freight shippers — trucking’s customers — will curb the amount of goods they ship.

nd since layoffs cause people to cut spending on all types of goods, news of large employment cuts can hurt the long-term freight outlook as well.

Stock values plunged in the week before the Fed cut rates, but there was hope it would act boldly enough to turn things around. Stocks fell hard again on Tuesday after the rate cut, then Wednesday and again Thursday.

On Wednesday, delivery giant FedEx Corp. reported weaker quarterly earnings and emphasized that freight market conditions “have deteriorated more than we anticipated.” On Thursday, FedEx rival United Parcel Service weighed in with much the same, as it warned that its first-quarter earnings will not meet Wall Street expectations.

The Fed knows that conditions are hard out there. It warned last week that the outlook includes “substantial risks that demand and production could remain soft.”

For trucking, hopes have been high that a recovery might begin soon. But the message from many companies, from the markets and from the Fed is that harder times may lie ahead.