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Jul 1, 2009 12:00 PM

Tank fleets weathering tough economy, looking to recession end

These numbers all paint a picture of a recession that is the worst since the Great Depression of 1929. Gross domestic product (GDP) is expected to contract 3.5% in 2009, the worst since the 1940s.

“We've heard many people say this is the worst recession since the Great Depression, and that is true in some ways,” Costello said. “However, this recession will not be as bad as the Great Depression in other ways. Unemployment hit 25% during the Great Depression, but we won't be anywhere close to that in this recession. We probably will go above 10% unemployment, though.

“We've been in recession since December 2007. The definition of a recession is a significant contraction across many sectors of the economy lasting more than a couple of months. It's very vague, and it's not necessarily two consecutive bad quarters of negative GDP. Economists look at a variety of factors.”

Whether it is called a recession or depression, this downturn has been hard on the consumer section, which accounts for two-thirds of GDP. “Over 90% of consumers are still employed, but many of them feel like they have fallen off a cliff,” Costello said. “Even those who still have a job know someone who was laid off. There is a psychological impact to that.”

In addition, real household net worth plunged 25% over a 10-quarter period, and consumers had to cut spending. That drop wiped out almost all of the financial gains consumers had made since 2002.

Home values have fallen significantly, and the decline probably will continue until values reach an annual growth rate of about 4.4%. Home values had been growing at around 15% a year during 2000 to 2005. Between 2006 and 2008 values dropped 8.5%, and there is more pain in store before home values return to the 4.4% sustainable level.

Consumers are still loaded down with too much debt. “We simply overspent during the past decade, and that cannot continue,” Costello said. “The consumer savings rate simply must increase. Consumer spending probably won't grow at the rate of past years even after the recession ends.”

Despite all of the bad news, Costello said he is cautiously optimistic that the economy is moving in the right direction. “We've seen some good signs,” he said. “I think we are close to hitting bottom, but that won't happen until the third or fourth quarter this year. I believe we'll see GDP growth of 1% to 1.5% in 2010 and better growth in 2011.”