Thursday, January 2, 2014

The economy keeps on trucking



The above chart shows the inflation-adjusted value of the S&P 500 index and the For-Hire Truck Tonnage Index (seasonally adjusted) that has been compiled since 1973 by the American Trucking Association. This latter is based on the amount of tonnage of all types carried by a wide array of trucking companies, both large and small. I see it as a proxy for the physical size of the economy, which is less than the total size of the economy since non-physical stuff (e.g., software, email, digital transmissions of movies, newspapers, magazines, and books) has become increasingly important.


The chart above zooms in on the same truck tonnage index over the past 7 years. Since the recovery got underway in mid-2009, the trucking index has increased at an annualized pace of 5.3%, which is substantially better than the 2.3% annualized pace of real GDP growth over the same period. I think the Truck Tonnage index provides solid support for the view that the U.S. economy is indeed growing, and probably doing somewhat better than many suspect.

As I noted before, the "overshoot" of stocks relative to the trucking index in 2000, and their subsequent "undershoot" in 2008, help us understand when the stock market is being influenced more by extremes of sentiment than by the economy's fundamentals. Today it looks like stocks are fairly valued given the underlying strength of the physical economy.

11 comments:

William said...
This comment has been removed by the author.
Benjamin said...

Rail traffic up steadily too.

Hans said...

This is an excellent index to use and a much better one than the choo choo index...

But there is a real danger to use it in conjunction as an investment indicator..

The last market pullback start in 2007Q4, yet the trucking industry continued to climb until 2008Q3, which would have left an investor with large losses..

In most cases, I presume the Dow Jones Index to lead and not follow others...

William McKibbin said...

US GDP growth excluding government spending currently stands near the lowest level since the 1950's -- government spending is clearly misleading with regard to economic growth -- more at:

http://wjmc.blogspot.com/2013/12/us-rolling-10-year-gdp-growth-ex.html

William said...

ECRI Weekly Leading Index Ticks Up,

A measure of future U.S. economic growth rose last week to its strongest since April 2010, while the annualized growth rate stayed steady. The Economic Cycle Research Institute said its Weekly Leading Index increased to 132.9 in the week ended Dec. 27 from 131.9 the previous week.

The index's annualized growth rate was 1.8 percent, the same as a week earlier.

William said...

James Paulsen of Wells Capital has been remarkably correct on the markets the past few years. This quote is from his long article in today's Barrons, 1/3/2014:

"Stronger economic growth combined with a further tightening in the resource markets (i.e., expect the unemployment rate to decline toward 6% by year-end and for the factory utilization rate to rise above 80% during the year) may lead to a modest rise in the U.S. inflation rate and produce the first "inflation scare/overheat/can the Fed exit fast enough" panic of the recovery.

"Consequently, the methodical and well-controlled monetary tapering which greets us here at the beginning of the year may turn to a "panic taper" as the year progresses wreaking havoc again in the bond market, creating a volatile but essentially flat stock market and perhaps producing solid returns for commodity investors.

You may need to Google the title of this article to read it at this link:

http://online.barrons.com/article/SB50001424053111903675404579298633659690604.html?mod=googlenews_barrons#articleTabs_article%3D1

Scott Grannis said...

William: thanks for the link to the Paulsen article. I've been on panels with him in the past, and it's my impression that we've always had a lot in common when it comes to understanding the economy. There's very little here that I disagree with. He sees a weaker dollar, I see a somewhat stronger dollar. He probably worries more about "overheating fears" than I do, but I can't rule that out. I remember vividly what happened when he Fed started tightening in 1994: bond yields jumped and the stock market got nervous, but in the end things worked out pretty well for equities and the economy. One thing he seems to leave out is that the Fed has two tools with which to tighten: draining reserves and raising the interest rate it pays on reserves. We've never seen these two tools in action before, so it's anybody's guess how it works out, but the Fed is not powerless here.

William said...
This comment has been removed by the author.
Benjamin said...

Paulsen is a smart guy, but like so many today seems to be on a QE boogyman-hunt.
Since QE3 the economy has grown steadily with sinking inflation. S&P up more than 25 percent. The scaremongers have become so twisted that now solid growth on the S&P is presented as evidence QE3 is not working...
Egads.
And panic selling by the Fed?
I only wish the Fed had engaged QE earlier and bigger...

William McKibbin said...

Now is not a bad time to buy a villa in Spain, Italy, or Greece -- there's something to be said about cashing out and finding a nice Mediterranean seaside retirement home -- I'm just not feeling enough love from companies that want my investment dollars -- the US needs a new cohort of CEO's who promise to raise dividends to record levels, or kill themselves if they fail...

theyenguy said...

You write Today it looks like stocks are fairly valued given the underlying strength of the physical economy.

Economic growth is fueled by the supply of money, security, and the technological ability to manufacture and produce; these are no longer present; a deflationary bust will be the outcome.

Yes, thats right, the economic factors of growth are no longer present, as the bond vigilantes in calling the Interest Rate, ^TNX, higher from 2.48%, on October 23, 2013, PIVOTED the world from the paradigm and age of liberalism into that of authoritarianism, and as such the economic deflation is that is already underway in France, EWQ, Italy, EWI, and Greece, GKEK, will worsen, and a deflationary bust will come soon, first to the Emerging Markets, EEM, and then the rest of The World, VT.

The paradigm of liberalism supported economic growth via the dynamos of creditism (which provided a swell in the supply of money), corporatism (which provided security) and globalism (which provided manufacturing, production and services).

On October 23, 2013, the bond vigilantes in calling the Interest Rate on the US Ten Year Note higher from 2.48%, PIVOTED, the world from the paradigm and age of liberalism, where economic inflationism operated ... into the paradigm and age of authoritarianism, which features the singular dynamo of regionalism, establishing economic destructionism.

Liberalism’s dynamos of creditism, corporatism, and globalism, are no longer present to support economic inflationism and its partner economic growth, as the bond vigilantes in calling the Interest Rate on the US Ten Year Note, ^TNX, higher from 2.48%, on October 23, and now higher from 2.99%, have not only begun to destroy fiat money, that is Aggregate Credit, and Major World Currencies, DBV, and Emerging Market Currencies, CEW, but have also begun to destroy fiat wealth, World Stocks, VT, on January 2, 2013.

The bond vigilantes in calling higher in the Benchmark Interest Rate, ^TNX, higher from 2.48%, on October 23, 2013, as well as the failure of debt trade investing and currency carry trade investing on January 2, 2013, were twin extinction events that destroyed the foundation, capstone, and centerpiece of liberalism, that being the investor; and are birthing authoritarianism’s counterpart, the debt serf.

Economic growth is now impossible; it cannot be achieved. Global economic deflation and economic recession, characterized by falling GDP, and a whole host of other economic metrics, such as credit contractions, are the tail risk of liberalism’s monetary stimulus and credit easing.