Tuesday, August 20, 2019

Another look at Truck Tonnage

Long-time readers will recall numerous posts on Truck Tonnage over the years. It's a good proxy for the physical size of the US economy, since it represents "70.2% of the tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods," according to the American Trucking Association. It's been unusually volatile this year, but that could be explained at least in part by the disruptions caused by Trump's tariffs. In any event, the latest reading (July '19) shows tonnage to be still in a rising trend.

Chart #1

Chart #1 shows the Truck Tonnage Index, which is up 7.3% in the 12 months ending July '19, and up 23% since the Nov. '16 election. Using a four-month moving average to smooth out the recent volatility, the index is up almost 5% in the past year, which is a bit more than nominal GDP growth (4%) for the 12 months ending June '19. Nice.

Chart #2

Chart #2 shows the path of Retail Sales through July '19. Sales experienced a slump in late 2018 and early 2019, but now appear to have resumed a decent rate of growth (~5% over the past year). This has all the hallmarks of tariff- and uncertainty-induced disruptions which have since been absorbed.

Chart #3

Chart #3 compares Truck Tonnage to equity prices over the past 16 years. It's a pretty nice fit, and paints a bullish picture for equity prices today.

Chart #4

Chart #4 compares Truck Tonnage to the inflation-adjusted level of equity prices over the past 46 years. That they track so closely adds weight to the view that Truck Tonnage is a good proxy for the size and health of the economy. This fit supports the current level of equity prices.

Chart #5

So as not to be accused of cherry-picking the data, Chart #5 compares the much broader Dept. of Transportation's Freight Index to the nominal level of equity prices over the past 27 years (which is as far back as the Freight Index goes). Here again we see a remarkable correlation between the two over the years.

Chart #6

A closer look at the Freight Index (see Chart #6) shows that it is not as bullish as the Truck Tonnage chart (Chart #1), since it's been relatively flat for the 8 months ending in June '19. Still, it does show a rebound from the late-2018, early-2019 slump, just as truck tonnage does. I suspect the July reading will be up, considering the strong July reading for truck tonnage. Stay tuned.

UPDATE (9/13/19): The July reading for the Freight Index was indeed up, as I expected:


steve said...

Block the Fed from reading this post!

Johnny Bee Dawg said...

Record high truck tonnage is more evidence that tariff fears are overblown.
All those free enterprise participants keep adapting and innovating.
Walmart, Lowe's and Target customers are faring quite well....along with the trucks that serve each of them.

Just imagine if Jay Powell corrected the curve inversion and global rate dislocation he created.
Imagine if lenders had incentive to keep lending.
Brian Moynahan said inversion causes fear and loss of confidence.

Only thing keeping a lid on prosperity is the Federal Reserve.
Come on, Jay! Everybody's rooting for you!

Benjamin Cole said...

Great charts,

In Chart No. 4, it looks like truck tonnage more or less flatlined from about 2000 to 2010.

Since then it has taken off like a rocket, up I would say 60% to 70%, difficult to say due to the semi log scale on the left hand side of the chart.


Keep on truckin'. But maybe something else is going on in this truck tonnage chart also. But I am not sure what.

John A said...

Job growth last year to be revised down by 501K:

Rich said...

All this despite the uncertainty that Trump’s erratic behavior has inflicted on businesses, consumers, and investors. We can only hope to be free of that soon.

Scott Grannis said...

John A, re jobs growth: Yes, it's quite likely that total jobs will be revised downwards by about 500K when the BLS reports January jobs next February. That would be about a 0.3% reduction in total jobs. The offset to the decline in jobs is most likely going to be an increase in labor productivity. Higher productivity is always welcome, and we have been enjoying rising productivity for the past several years, thanks, in large part, to increased business investment and a significant reduction in regulatory burdens.

steve said...

A different perspective:


randy said...

Steve, thanks that was interesting. My brother is a trucking manager - mostly moving heavy equipment to construction sites. I asked him about his business a few weeks ago. The answer was that it really depends on the line of business trucking serves. Highlights the difficulty of parsing aggregate statistics to make generalizations I guess.

steve said...

Very eloquently put:


marcusbalbus said...

one or your ongoing "post hoc ergo propter hoc" posts. worthless drivel.

steve said...

Our illustrious POTUS has reached a new low, literally demanding that US business cease to do business with China. If there is anyone dumber on the face of the planet I don't know who they are. Has he ZERO knowledge? Even if we wanted too-and I submit that to do so would be racist to the extreme, how the F do you stop doing business with your number one trading partner?

Damn, I may for the first time in my life vote DEM. Perish the thought but I don't think I can take another five years of this idiot.

Scott Grannis said...

Trump is taking risks with China and the US economy that no president in modern times would have dreamed of taking. He's pursuing what he thinks is the best way to convince China to mend its ways. As an economist I deeply regret that he is using tariffs to accomplish his objective, since tariffs are an impediment to free trade, and free trade is a powerful engine of global growth and prosperity. Most economists thus believe he's making a huge mistake.

But: if he succeeds in bringing China's behavior into line with generally accepted trade and commercial practices, then it's very likely that tariffs will be reduced or eliminated. If that happens, although tariffs are a bad policy choice, they will have proven to be very useful, Trump will go down in history as a very effective president, and the global economy will be stronger.

You can't achieve great things without taking great risks.

steve said...

Scott, you're just too nice a guy to see Trump for what he is-a moron. To your point though, what if he DOESN'T succeed? This could literally end in a shooting war. Yes, I know it's far fetched but most certainly not an impossibility. In fact, I'd put the odds at about the same as Trump succeeding in changing China's behavior.

NormanB said...

Scott, you mentioned increased productivity but could you please (re)post that graph?

John said...

Risk-reward is way out of balance here IMO. Xi can probably outlast Trump in this high stakes game because Trump faces an election. That could make Trump desperate and dangerous to get this resolved before next November.

amritsari said...

1000% sure that if Obama had done this you would have called him an ignorant buffoon. Amazing how people always find a way to rationalize their support of the most stupid stuff. Sunk cost fallacy ??
Also - Severe sanctions haven't broken the back of regimes - N. Korea, Iran, etc. Why would tariffs change China's behavior? Americans are deeply underestimating Chinese pride.

Johnny Bee Dawg said...

Amen, Scott!

amritsari: FWIW, Barack wasn’t a self-made billionaire, and hadn’t run so much as a Kool Aid stand.
Everything He did and said His first term was bad for growth. Trump got us the fastest gdp growth and wage growth in a decade, along with 50 year lows in unemployment...all during a coup attempt, with a FED that’s trying to squash markets. I’m giving Donald all kinds of passes to take these bold moves. He’s a winner. No rationalization needed.

The salvo China fired this morning before Powell spoke barely moved the market.
That tells me that China’s ability to hurt us is lessening. Their “missile” was a dud. That is a market “tell” to keep in mind. China knows it, too.
Negotiating strength is moving Trump’s way.
Heck, markets even went up a little after Powell’s snippets got released!

Then Trump dropped the “nuclear” option by Tweeting that we don’t need ANY trade with China, and “ordering” all US companies to get out. Markets believed it. China might, too.

The thing to notice is the high relative strength leadership fell FAR less than the market. This is 180 degrees different than 4th quarter, when leadership absolutely collapsed on days like this. That is another market “tell”.

My accounts held up superbly, but admittedly it was mostly due to relative strength leadership described above, and non-standard large holdings in gold miners, trailer park REIT and TLT.

S&P Low Vol beat S&P by 90bp. This was not a day of carnage, like it appeared. That’s a “tell”. Market doesn’t want to give up yet.

FYI, Kaplan was the only one i heard in Jackson’s Hole to specifically mention a problem with the short end inversion, and Fed Funds being higher than every Sovereign bond on Earth. The 800 pound gorilla in the room.

Just knock it down fifty, Jay! Let’s go, bay-bee!

My dream tonight will be that Tim Cook does a joint presser with Donald where they announce moving all Apple manufacturing to India and the Rust Belt!! And Tim buys Greenland from the Queen of Denmark, and gives it to Donald and the US as a present!

Can’t wait for Donald at G7 this weekend! I’m getting popcorn!!

amritsari said...

Dawg - u believe that DJT is a self-made billionaire ?? LOL. He inherited money, bankrupted 4 times, and now we don't know his leverage and who he owes money to because he won't show anybody his tax returns. In fact, the current tariff script seems to be following his typical business shenanigans and will likely end in misery and humiliation for him.
Also - apparently the market differs from you in judging Obama's words. Market returns were pretty darn good.
Also - DJT doing his best to pump up the deficit, DURING a period of so called strong economic growth. I thought the Tax cuts were going to solve the deficit :)
Don't let facts get in the way.

amritsari said...

I squinted real hard and could not spot any significant difference in the YoY change in employment between Obama and DJT years:


Not sure what all the DJT unemployment chest-thumping is about.

Johnny Bee Dawg said...

Squint harder!
You’re missing some facts!
Have fun with all that!

John said...

Did anyone actually notice just how empty and meaningless Trump's "nuclear option" statement regarding China was? "Immediately start looking.."

OK, we're looking. Now what?

Scott Grannis said...

NormanB, re productivity. See my 5/2/19 post "Productivity makes a comeback." https://scottgrannis.blogspot.com/2019/05/productivity-makes-comeback.html

Especially Chart #4

ckhajavi said...

scott - why do you think the fed is working so slowly despite the massive disconnect between the fed funds rate and the 2 year - seems like a 50bps cut is very warranted and ideally in between meetings for greater impact but every time they open there mouth it’s lets monitor the situation

steve said...

Maybe because The Fed would appear obsequious if they cut 50 bps due to Trump's inane tweets. He's his own worst enemy.

The Cliff Claven of Finance said...

Railroad intermodal units counts are a leading indicator of truck tonnage.


Truck tonnage is a coincident indicator, not a leading indicator.

Intermodal unit counts for y-t-d 2019, through August 17 are down -3.8% from 2018.

That's not a bad as it sounds -- 2018 was a good year.

But 2009 is certainly not up.

The S&P 500 index closed August 23 at 2,847,
about 1% lower lower than at the 2018 peak
on january 26, 2018, of 2,873.

The S&P 500 has stalled since January 2018.

I blame that on the failing Trump trade war, not on the Federal Reserve

Scott Grannis said...

Cliff: I agree with you. The main cause of the economic slowdown is Trump's trade war, not the Fed. It would help if the Fed got in gear and cut another 50bps, but not doing so is not necessarily a fatal or recession-causing mistake. Liquidity remains abundant, but there's a lot of risk aversion out there that the Fed needs to offset with lower rates.

Why is the Fed so slow? Several reasons: 1) Powell is reluctant to admit that Trump's right and he has been wrong. Institutional inertia is also a consideration. 2) The Fed operates by committee consensus, not by rules. This means the Fed is almost always going to be "behind the curve," reacting to events rather than being pro-active. In the past this inertia has contributed significantly too recessions. It's a concern, no question. 3) They are reluctant to move between FOMC meetings, in order to avoid the appearance of panic.

John said...

I think the main reason the Fed is holding back is that they want to save a few bullets in the chamber - to be able to respond when the next recession hits. Suppose the problem is FUD caused by the trade war, the Fed cuts 50 bps and nothing positive results? That's a real possibility. Personally, I'm glad we have a Fed chairman who doesn't spring into action whenever a few hyper-caffeinated day traders get nervous.

Johnny Bee Dawg said...

Told ya the Fed was a political entity.
Former Gov Dudley comments today were pure Deep State. Practically admitted the Fed should try to create a recession to remove Trump from office.

You know he’s not alone.
Now we know why they’ve allowed the short end inversion to persist since March...and have little intention of fixing it.