There are many economic indicators. The U.S. Census Bureau lists and tracks 13 of them.
The Journal of Commerce has indicators, too. It’s a weekly magazine read by logistics executives to help them execute their day-to-day shipping and logistics, as well as their global supply chains.
Not too surprisingly, the Journal of Commerce tracks truck and rail transportation. Historically, transportation was always viewed as a leading indicator of economic activity and growth.
And the indicators for transportation seemingly point to a growing economy:
- Truck tonnage rose strongly, up 5.2 percent from a year ago.
- The American Trucking Association numbers seem to point towards a recovery, as well. Its index tracks the change in freight tons hauled by carriers. It increased 10.9 percent from July, and is up 9.1 percent from a year ago.
- More good news: In the third quarter, all the major railroads in the country broke records. They set an all-time high of 313,026 intermodal container and trailer loadings, according to the Association of American Railroads.
Analysts Are Missing Out on the Big Picture
Well, according to Satish Jindel, President of SJ Consulting Group in Pittsburgh, analysts who watch cargo numbers are missing the bigger picture.
He believes there’s a growing disconnect between the overall economy and the amount of freight shipped.
In a recent article in the Journal of Commerce, he pointed out that freight carriers “touch” less of the economy every year. His estimates that freight really only touches 40 percent of our overall GDP.
The other 60 percent? It’s the service sector. It doesn’t ship or produce anything that requires shipping. According to the U.S. Bureau of Economic Analysis, the numbers are even worse than that.
Its statistics indicate a measly 35 percent of GDP relates to personal consumption and fully 65 percent relates to the service sector.
Two great examples of huge service businesses that don’t require shipping are Facebook and Google (Nasdaq: GOOG). Both companies generate tens of billions of dollars of revenue while making absolutely nothing.
Throw in all the big banks, insurance companies and numerous other professional services, and you start to get the picture.
Leading Economic Recovery Indicator Starts Lagging
The more that the overall economy shifts towards companies that produce no physical product, the less the transportation indicators can be relied on as a leading indicator of economic recovery or downturn.
In fact, it could be that the transportation indicator shifted to a lagging indicator. Most trucking companies are handling goods that were already imported. They’re already on their way to the end user by the time the consumer stopped spending.
That means trucking companies could continue to have one or two good quarters after things begin to slow down.
It’s something to think about the next time you hear the talking heads on TV suggesting that transportation is a leading indicator. The reality is, that line of thinking may be quickly coming to an end. Adjust your own thinking and investment strategies accordingly.
— David Fessler[ad#jack p.s.]
Source: Investment U