For over a year, there has been much discussion about the downturn in freight volumes (which some have labeled a “freight recession”) and there have been many questions about when we will begin to witness a turnaround. While each individual company, whether it is a shipper or carrier, can see its own volumes, it is difficult to obtain true, objective and credible data on how the industry or industries as a whole are performing. With the U.S. sub prime mortgage crisis, the volatility in the stock markets and the media coverage being given to the state of the North American economies and the potential for an economic recession, this is raising increasing questions about whether the freight industry is going backwards or forwards.
As a result, I thought it would be helpful to identify a set of economic indicators that can be tracked on an ongoing basis to provide some visibility into what is happening. As I set about the task of assembling a group of indices, it quickly became apparent that no one or two indicators tell the whole story. Some are leading edge indicators, some are after the fact trend line data and some have predictive value as to what may happen in the future. All of these links can be entered into the Favorites section of your browser to track them with whatever frequency you wish.
Since this is just one set of indicators, there is no doubt that I have missed a number of good ones. Please take a minute to respond to this blog and share some of your indicators with our readers. That would help augment everyone’s data bank of knowledge.
Freight Data
Some of the widely used indicators are those that recognize shipping data. Here are four such indicators.
Association of American Railroads Weekly Car Loadings
Freight traffic on U.S. railroads during the week ended January 19 was up for the second consecutive week in comparison with the corresponding week last year, the Association of American Railroads (AAR) reported.
http://www.aar.org/Newsroom/carloadings_page.asp
American Trucking Association Truck Tonnage Index
The American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index jumped 4.1 percent in December 2007, after rising 0.9 percent in November. The latest increase was the largest month-to-month gain since a 6.2 percent jump in December 2006. The not seasonally adjusted index fell 8.2 percent from November to 102.7.
http://www.truckline.com/index
Intermodal Association of North America Monthly Intermodal Traffic
Intermodal volume, which is not included in the carload data, totaled 230,771, up 3.0 percent from a year ago. Container volume rose 4.1 percent while trailer volume was off 0.9 percent.
http://www.intermodal.org/statistics_files/index.shtml
Bureau of Transportation Statistics Air Freight Summary
http://transtats.bts.gov/freight.asp
Each of these indicators provides historic data that can show trend lines but cannot necessarily be a predictor of the future.
Inventory Levels
Inventory is a key to profitability. Inventory velocity turns assets into profits. The faster inventory turns, the greater the profitability. Sales wants to make sure that there is always inventory on hand to meet each order. Finance wants to carry fewer inventories to free up capital for other needs.
As published monthly by the Department of Commerce, the Inventory-Sales Ratio measures how many months it would take to deplete the backlog of goods held on shelves at that specific monthly sales rate. An inventory-sales ratio of 1.65 means that it would take 1.65 months, on average, to clear the shelves of inventory.
A declining inventory-sales ratio is usually good news for the economy since it means that sales are increasing faster than inventories. Businesses respond to meet the increase in sales by speeding up their orders and their production rates. Therefore a downturn in the inventory-sales ratio is a leading indicator that business conditions are improving, and that interest rates are close to reaching their cyclical troughs.
A rising inventory-sales ratio means that inventories are rising faster than sales. Businesses are becoming overstocked. They respond to this unintended buildup of inventories by postponing orders and cutting production rates. The result is a slowdown in economic activity, which reduces interest rates and inflation. Therefore an upturn in the inventory-sales ratio is a leading indicator that business conditions are deteriorating and that short-term interest rates are close to reaching their cyclical peak.
Canadian Inventory Ratio
http://www.statcan.ca/english/freepub/63-008-XIE/2007008/ct008_en.htm
Canadian and U.S. Inventory to Sales Ratios
http://www.statcan.ca/english/freepub/63-008-XIE/2007008/ct007_en.htm
http://www.census.gov/mtis/www/mtis_current.html
U.S. Inventory to Sales Ratio – Forecast
http://www.forecasts.org/inventory-to-sales-ratio.htm
U.S. manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month (November) level of $1,436.7 billion, up 0.4 percent (±0.1%) from October 2007 and up 3.5 percent (±0.3%) from November 2006.
General Economic Trend Data
Gross Domestics Product
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 4.9 percent in the third quarter of 2007,
according to final estimates released by the Bureau of Economic Analysis.
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
Retail Sales
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for December, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $382.9 billion, a decrease of 0.4 percent (±0.7%)* from the previous month, but 4.1 percent (±0.7%) above December 2006.
http://www.census.gov/svsd/www/marts_current.html
Industrial Production
Industrial production was unchanged in December 2007; the change in the index over the previous three months was little revised, with offsetting revisions to September and October. For the fourth quarter, output fell 1.0 percent (annual rate), the first quarterly decrease since the fourth quarter of 2006.
http://www.federalreserve.gov/releases/G17/Current/
Unemployment Insurance Weekly Claims Report
Economists watch unemployment claims closely because an increase could be a leading indicator of a slowdown. Unemployment claims are expected to surge over the next few weeks.
http://www.dol.gov/opa/media/press/eta/ui/current.htm
Consumer Confidence
Consumer confidence provides an insight into consumers’ attitudes about the economy and their willingness to spend money. A low level of confidence may result in less spending which may result in less freight activity. Consumers are quite downbeat about the short-term future and a greater proportion expect business conditions and employment to deteriorate further in the months ahead.
http://www.conference-board.org/economics/ConsumerConfidence.cfm
A Handy Summary
If you are looking to go to one site for a number of these indices, click on the Statistics section of the Canadian Transportation & Logistics website.
http://www.ctl.ca/issues/Search.asp?nrcs=t&id=2121
Some Additional Thoughts
Here are a few words of wisdom from Brian Wesbury, chief economist for First Trust Portfolios, L.P. as reported in yesterday’s Wall Street Journal. “A year ago, most economic data looked much worse than they do today…. The good news is that the U.S. financial system is not as fragile as many pundits suggest. Nor is the economy showing anything other than normal signs of stress.” With the drop in the prime lending rate by the Fed and the possibility of a stimulus package by the U.S. Federal government, there appears to be a will to bring the freight recession to an end.