There’s an interesting correlation between heavy truck sales, GDP, and the S&P 500. If the relationship holds, it spells bad new for the already weakening second half recovery meme.
“We’ve never seen a plunge this steep that didn’t foretell a recession,” says Bloomberg columnist David Ader.
Bloomberg reports As Heavy-Truck Sales Go, So Goes the Economy
For most people, the economy’s ups and downs are best measured by famous indicators like monthly job reports and quarterly releases of gross domestic product. But students of the arcane took special notice earlier this month when the Bureau of Economic Analysis released some disturbing data that didn’t make anybody’s front page. In August, domestic heavy-truck sales fell 29 percent from the same period of 2015, the weakest month in well over three years.
Any drop that dramatic could always be an anomaly, but heavy-truck sales have been slipping for two years. Broad weakness in this category has historically been a reliable hint that a recession is on its way.
There are other worrying signs. Caterpillar has said that used-machinery prices are down 10 percent from a year ago. That could also reflect the impact of oil and mining industry problems, yet a price decline in used construction equipment could have a dampening impact on new-equipment sales for big manufacturers.
Another warning comes from the Cass Freight Index, a measure of North American freight volumes and expenditures. In August, Cass noted that its Expenditure Index was down 3.3 percent from July and 6.3 percent from the previous August. These measures, too, have shown weakness over the last two years.
Weak truck sales have sometimes given false signals about a recession over the last 30-odd years. But the sheer size of this August’s drop looks different. We’ve never seen a plunge this steep that didn’t foretell a recession.
Hitting the Brakes
Truck Sales vs. S&P 500
Cass Freight Index
I regularly follow the Cass Freight Index. It has indeed been performing miserably.
Cass Freight Index Shipments
Shipments have risen every month this year. Shipments are up 0.4% from last month.
However, month-to-month fluctuations is a very poor way of looking at things. The Cass index is not seasonally adjusted. Shipments normally rise from January forward. Towards the end of the year, shipments will start declining.
Instead compare August shipments to August shipments in prior years. Shipments are lower than in 2015, 2014, and 2013. It’s a clean sweep of weakness.
Cass Freight Index Expenditures
The plunge in trucking expenditures is unusually steep compared to prior years. It’s a strong sign of huge overcapacity in the industry.
Mike “Mish” Shedlock
“Shipments are lower than in 2015, 2014, and 2013. It’s a clean sweep of weakness.”
Luckily, I bet the exacta … rail lower than in 2013, 2014, and 2015
https://www.aar.org/Pages/Freight-Rail-Traffic-Data.aspx
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Say, where is everyone? … oh, did I miss the start of a bank run?
It has been years since I checked the Asia open on Sunday … I might have to tune in this weekend.
Mish, I am a small business owner that has three over the road (heavy) trucks. Today I have decided that I will have to get rid one of my trucks (and the Driver). The truck requires a $5,000 repair for which I don’t have the funds. The shop could take the truck as a trade in on a newer model, but then I’ll have to pay 5% Sales Tax on a $40,000 unit and the accompanying license fees of $1,500 and the annual Federal Excise Tax of $550 and the cost of insuring a truck that would be worth much more than the older model. In December I’ll have to pay my International Registration Plan (IRP) taxes. Last year that was about $1,700 per truck.
To add insult to injury, the repair is required because of the pee poor roads of New York State which damaged the rear axels. Of course New York is one of the states that has highest fuel taxes and charges out of state trucks a separate fee for the right to enter the state and then I have to pay a rate for each mile driven in the state (Oregon, Kentucky and New Mexico have similar taxes above the fuel tax that I pay with each gallon used).
Your message above confirms my decision about the one truck and does nothing to encourage me over my concerns for my other two trucks and Drivers.
These are the real world choices that business owners/managers face and no politician or Fed official has experience with.
“Interest Rates” are only one factor and cannot “save” an economy.
But “Interest Rates” can destroy pension plans, and they have.
Chuck-
NY charges a Highway Use tax, while KY and NM both have Weight Distance taxes which are all calculated by the amount of miles that are accrued and corresponding weights. IRP registration fees, not taxes. It is important to have strong vehicle maintenance protocols and set aside funds for such repairs in peak months. Feel fortunate it is not an engine rebuild or making the vehicle CA compliant, because eventually, those rules will be applied nationwide. New trucks retail around $100k and 5% sales tax is nothing compared to what is seen around here. As an agent I have also seen IRP fees soar well above $2.5k depending on the lanes of travel chosen. Things will get more difficult by end of 2017 and the trucking industry will never be what it used to be. I suggest taking a hard look at your small business and its ability to be financially solvent.
Rhetoric from the Fed has been nothing more an all out effort to prop up the Democratic vote. Will it all happen before the election, I sure hope so. It would be the icing on the cake for Obama’s legacy.
Maybe they are all waiting for the latest thingamajig gizmoid self-driving trucks? And when more truck-drivers are made unemployed, we will FINALLY have an economic recovery! /sarc
The only thing they are waiting on is when their new job at Goldman starts.
Must be a leading indicator as I travel (drive extensively) over the eastern 3rd of the country as part of my job. No real decline in truck traffic on the roads yet.
I remember (and commented here) that in 2008 truck traffic dropped dramatically accompanied by lots of open billboards as well. That’s the view from I-70, I-80, I-90, I-75, I-81, I-69. I-71.
The haulage industry response to real world demand. Something is up. It might be a good idea to read Orwell’s “1984” again. Just saying :–)
Don’t expect September to look any better. KW in Renton, WA just cut their production by 50%. Last August they went from 16 a day to 12 then during the November anomaly cut again to 8. Now 4. Look at any old chart of truck sales and it usually goes up every month the second half of the year.