Does the Slowdown in Trucking Mean a Retail Slowdown Is Around the Bend?

Several times we have commented on the transportation names, both for their own investment merits and as an indicator of overall economic activity. Since anything sold from any store is transported there by truck, a slowdown in trucking means stores are seeing no need to stock up. Barry Ritholtz makes that point when discussing the latest American Trucking Association tonnage data at The Big Picture.

Truck Tonnage Drops Sharply

November 2006 marked the single worst month for for-hire truck tonnage since the last recession,” said ATA Chief Economist Bob Costello. “Both the month-to-month and year-over-year decreases indicate that the economic slowdown is in full gear. The most troubling number is the 8.8 percent contraction from November 2005, despite the fact that year-over-year comparisons are difficult due to the very robust volumes during the same month last year. One month certainly doesn’t make a trend, but if we continue to see year-over-year reductions of similar magnitudes in the next couple of months, it could indicate a greater economic slowdown than economists are projecting at this point.”

Naturally, a tonnage slowdown is bad news for truckers. Investors who are into the relative game can play the non-asset based names like Landstar (LSTR) and CH Robinson (CHRW). Those who simply prefer positive absolute returns may want to steer clear of the whole group.

Disclosure: Author holds put options on FedEx (FDX) and Union Pacific (UNP) and is short put options on Landstar (LSTR).

Comments

[Paul Meisel:]

Something I haven't seen written -- a large portion of trucking decline must be related to the housing slowdown as well. How much is housing? How much is retail?

I went looking for the data but was unable to sift it from the sources I found...

Certainly a trucking slowdown isn't good sign, but how much of the bad news is already out there?

2006 Dec 29 10:59 AM

[William Trent:]

Paul,

While it's true that trucks supply both retail and homebuilding, homebuilding is typically seasonally slow during winter. Therefore, I would say it is a safe bet that any/all of the contraction in November was retail related, rather than housing related.

Auto is not helping either, but at some point you have to conclude with housing down, autos down and retail apparently down - everything is down.

Bill Trent

2006 Dec 29 03:02 PM