One of the signs of a slowdown I have occasionally been flagging in the past few months is rail traffic. This is posted every week by the AAR. While there is no comparable weekly report for trucking, there is the monthly Cass trucking report which just got posted for January. The bottom line is that we have enough evidence between the two over the last three and a half months to say that transportation growth has completely ground to a halt.
Transportation, production, and sales all show the classic signs of the beginning of at very least a slowdown
Let’s take a look at the two metrics. First, here are the weekly AAR reports for the past 3 years:
We can see that the weekly rail reports showed no YoY growth in December, followed by a strong rebound in most of December and the first half of January. But for the past four weeks, rail has posted YoY negative numbers.
Overall for the last 3.5 months, the two big measures of the transportation of goods show sharp deceleration, and taken together represent no better than slightly positive YoY growth over that period.
That transportation growth has turned flat is important, because all goods must be transported to market, from commodities all the way through finished goods going to retailers. And that puts January’s -0.6% decline in industrial production in perspective.
While declines on the order of January’s weren’t unusual in 2015-16, they correlated with real GDP growth during that time of between zero to 2%.
Meanwhile, I thought I would take a look at broad business sales and inventories. That’s because in both slowdowns and recessions, sales peak (and trough) before inventories, as shown in this graph for the last 25 years:
We know that the first estimate of real retail sales in December turned down sharply. Although I won’t show it, retail inventories did rise.
The broader business measures, which included manufacturers and wholesalers as well, have not been updated beyond November, but a close-up of the last 12 months shows a small decline in total business sales in that month, while inventories continued to increase:
The bottom line is it appears that trade wars and the government shutdown have taken an economy that was already weakening, as forecast by the leading indicators for the last half year, and brought it to the verge of a standstill.
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