Thursday, December 21, 2017

Truck tonnage is impressive

I've been tracking truck tonnage for a long time, and it's been a reliable—and generally bullish—indicator of underlying economic activity. It measures the actual tonnage of freight hauled by the nation's carriers, and this physical measure of the economy's size has also tracked the inflation-adjusted gains of the US equity market. Truck tonnage surged almost 8% in the year ending November, and this is one of the most impressive proofs that economic activity has improved measurably this year.

Chart #1

As Chart #1 shows, truck tonnage over time has increased very much in line with the inflation-adjusted increase in equity prices. The latest surge in truck tonnage correlates well with the strength of the stock market this year. If anything, this chart suggests that the equity market is behaving in line with the economic fundamentals and is not, as many fear, in a bubble.

Chart #2

Chart #2 shows a closeup of the past 5 years of the truck tonnage index. The economy appears to have gotten a significant boost starting in the second quarter of this year. As we know now, real GDP growth jumped from 1.2% in the first quarter to 3.1% in the second quarter, and it continued stronger with 3.2% in the third quarter. By all indications, we should see at least 3% growth in the current quarter. It's been 12 years since we have seen three consecutive quarters with 3-handles or better. The economy has really improved this year, and Trump's efforts to reduce regulatory burdens arguably get a significant share of the credit.

And the economy should continue to improve next year, as the significant reduction in the corporate income tax rate just passed by Congress spurs more investment, more jobs, and rising real incomes.

9 comments:

tom said...

Thanks Scott for your continued insights. Best wishes for you over the holidays and into the new year!

Scott Grannis said...

tom: thanks, it's been a great year and I hope 2018 is at least a good one. Lots to celebrate during the holidays!

Benjamin Cole said...

Keep on trucking.

Trucks lately may be winning marketshare from trains.

Adam said...

Thanks Scott for sharing your knowledge with us. All the best for You and your Dearest and happy and prosperous New Year.

Unknown said...

Are you going to post your predictions for 2018?? Please.

Scott Grannis said...

Working on it!

Adam said...

Scott, one of the most contrarian calls would be having no recession after yields inversion:)

Scott Grannis said...

To call a recession, I'd want to see 1) an actual yield curve inversion (we're not there yet), 2) rising swap and credit spreads (no sign of that yet), and 3) much higher real yields (they are still very low). So I don't think we'll have a recession next year.

Adam said...

So as many calls no 1 as a recession omen, we might have next buying opportunity when that happens and possibly market plunges on that fears.