“We’ve never seen a plunge this steep that didn’t foretell a recession,” says Bloomberg columnist David Ader.
For most people, the economy’s ups and downs are best measured by famous indicators like monthly job reports and quarterly releases of gross domestic product. But students of the arcane took special notice earlier this month when the Bureau of Economic Analysis released some disturbing data that didn’t make anybody’s front page. In August, domestic heavy-truck sales fell 29 percent from the same period of 2015, the weakest month in well over three years.
Any drop that dramatic could always be an anomaly, but heavy-truck sales have been slipping for two years. Broad weakness in this category has historically been a reliable hint that a recession is on its way.
There are other worrying signs. Caterpillar has said that used-machinery prices are down 10 percent from a year ago. That could also reflect the impact of oil and mining industry problems, yet a price decline in used construction equipment could have a dampening impact on new-equipment sales for big manufacturers.
Another warning comes from the Cass Freight Index, a measure of North American freight volumes and expenditures. In August, Cass noted that its Expenditure Index was down 3.3 percent from July and 6.3 percent from the previous August. These measures, too, have shown weakness over the last two years.
Weak truck sales have sometimes given false signals about a recession over the last 30-odd years. But the sheer size of this August’s drop looks different. We’ve never seen a plunge this steep that didn’t foretell a recession.
Truck Sales vs. S&P 500
Cass Freight Index
Cass Freight Index Shipments
Shipments have risen every month this year. Shipments are up 0.4% from last month.
However, month-to-month fluctuations is a very poor way of looking at things. The Cass index is not seasonally adjusted. Shipments normally rise from January forward. Towards the end of the year, shipments will start declining.
Instead compare August shipments to August shipments in prior years. Shipments are lower than in 2015, 2014, and 2013. It’s a clean sweep of weakness.
Cass Freight Index Expenditures
The plunge in trucking expenditures is unusually steep compared to prior years. It’s a strong sign of huge overcapacity in the industry.
Mike “Mish” Shedlock