My Bread and Bacon Theory.

I have a theory concerning our economy that may not be as complicated as most of the economists but for me it has always been a good indicator. 

I call it the bread and Bacon theory.

Bread and bacon is a household staple for most Americans, unless your religion precludes it, (I still haven't found kosher bacon) and is therefore a good leading indicator for not only inflation but consumer spending as well.

This past week while grocery shopping, (yes, I'm still playing Mr. Mom), I noticed that the price of bread seemed to have decreased since last month. I was actually excited by this, until, I read the package labeling. 

The price of the bread had indeed been reduced. However, this is offset by the reduction in product quantity. When calculated mathematically, the overall price per ounce had actually increased by 20%. 

Once again, paying for the necessities of life became 20% more difficult.

After loading my card up with two loaves of overpriced bread, I then rounded the corner to the Bacon section. After a mild heart attack after seeing the prices, I actually decided to skip on the Bacon. Why would anybody pay almost 5 dollars a pound for bacon? As much as I love bacon, it is simply no longer worth the cost. Therefore, I would rather do without.

Now how does this relate to truck finance you ask?

Simple.

As the price of commodities increase, and the cost of living and running a business becomes more challenging, companies will be looking for ways to reduce cost.

For some companies, many expenses like fuel, insurance and operating overhead would fall into the bread category. Because of the cost increases in these categories, many companies will simply try to do more with less. They will push for automation and efficiency. They will try and reduce human capital investment and will cut equipment maintenance budgets. But, they will still need these items and therefore they will put the bread into the cart.

For these same companies, there might be an increased need for equipment. However, when faced with having to pay an increased amount for your bread, there is a good chance they may skip the Bacon. As a business owner, I am leery of spending capital, even more so than in the past.

In a previous blog I asked where all the truck buyers went, because I have not been seen much in the way of volume. 

This did not match up with industry statistics would said that trucks were being purchased in order to take advantage of end of year tax credits. I didn't quite understand this disconnect until this weekend. The companies that still have deeper pockets and can still afford bacon are jumping on this opportunity for additional tax sheltering. These customers are not searching for financing. They either have long-term relationships set in place or they have the actuarial ability to fund themselves.

These companies can still afford the Bacon.

What I find concerning about the situation is not necessarily the price of the bread and bacon but the growing distance between  those who can afford it and those who can't.

In short, the smaller trucking company is being squeezed out of the market.

As costs increase, they are not able to compete with the volume discounts given to the larger companies. Let's face it; if I buy 100 pounds of bacon, I am sure the price will not equal out to five dollars a pound. Yet, in my situation, if I were to buy 100 pounds of bacon, most of it would simply go to waste and it would be an economic drain not an economic advantage. I simply do not use or have the capacity to use that much bacon.

Neither does the owner operator or small fleet.

The increased inflation that we're facing, will cause an increase in frustration.

In trying to build up our economy in the short term, I fear that our government has destroyed it in the long term. Something must be done to decrease the cost of running and maintaining a business. If the company can't afford to keep their doors open, this will increase the unemployment rate and increase the social burden. Increasing the social burden will then increase taxes, which will raise taxes, which will increase inflation.

It's a never ending cycle. Our economists need to figure out a way to halt inflation and to make business affordable again. Not just for the large companies who can afford as much bacon as they want, but for the small companies who are struggling to simply make a BLT.