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Sandy Hooper, USA TODAY
Another early-warning signal for a possible recession: fewer goods are being shipped across the country.
In June, truck, rail and air freight volumes declined 5.3% year-over-year, the seventh consecutive annual decline, according to the closely watched Cass Freight Index. This followed a decline of 6% in May.
The continuing decline could be a problem for the economy as shipments reflect demand for a wide range of consumer and manufactured goods.
"There is growing evidence that the economy is gradually shrinking," wrote Donald Broughton, managing partner of Broughton Capital and author of the Cass report, in the last issue.
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According to Natixis, a research firm. Broughton says the cargo measure usually predicts a shift in the economy within six months.
"I think it's a worrying signal," says Joseph LaVorgna, chief economist of America for Natixis.
However, other analysts are down the pullback in shipping. Bill Cassidy, truck specialist for the Journal of Commerce at IHS Markit, notes that the Cass index is still at a historically high level of imports and exports, resulting in fewer shipments of chemicals, consumer goods and other goods to seaports and airports , The trade battle has also weakened the confidence and investment of companies and caused fewer orders for computers, factory equipment and other durable products.
(Photo: Old Dominion Freight Lines)
Broughton also notes that auto sales have declined by 1% this year, while home sales have fallen by about 5%, resulting in fewer auto parts shipments and Lumber led] The freight boat has helped manufacturers and traders, but hurt the shipping companies. According to Frank McGuigan, CEO of Transplace, a top cargo management company, truck contract freight prices have fallen by about 5% and spot prices by about 30% this year.
The latest monthly shipping data is ahead of the Ministry of Commerce's GDP report for the second quarter, which should be released on Friday. Economists estimate that the economy grew 1.8% per year from April to June, after strong growth of 3.1% in the first quarter, as solid consumer spending offset sluggish business investment and exports. In the Cass report, however, Broughton raises the question of whether GDP data show that the economy actually shrank in the last quarter.
That would be worrying, but would not necessarily predict a recession, which depends on a differentiated analysis of the industry production, employment, retail sales and personal income. Other indicators also raised concerns about a possible downturn until next year. An inverted yield curve – with interest rates on three-month Treasury bills higher than yields on ten-year Treasury bills – underpins the bleak outlook. And corporate earnings in the second quarter could see a second annual decline in a row.
The Federal Reserve is expected to lower interest rates next week for the first time in a decade to prevent a possible decline in the economy.
Transgender McGuigan shrugged to dispel fears that the ship's tailwind might signal a recession. The past year has been "phenomenal" for both the economy and the freight industry and is simply a slowdown in 2019. The Cass index saw annual growth of more than 8.5% in 2018.
"You see a slight regression, but we are still in expansion mode," he says.
Barclays economist Jonathan Millar agrees In addition, last year's economy was dominated by tax cuts and federal spending and solid global growth. As a result, it reached its best performance since the Great Recession of 2007/09. The US economy has slowed down but is not shrinking. Employment growth and consumption, two important economic pillars, remain solid.
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History may support this confident view. The Cass index saw a similar annual decline for 18 months in 2015 and 2016, with no sign of recession, economist Gregory Daco of Oxford Economics notes. The environment was somewhat similar to the current situation: a weak global economy and a strong dollar weighed on US exports, but a strong downturn in the oil industry also weighed on activity.
According to Daco, the Cass index fell more sharply – about 15% on average – before and during the Great Recession.
In an interview, however, Broughton, who authored the Cass report, notes that the current freight downturn may be different than in 2015 and 2016. Then he only drops certain rail deliveries because the withdrawal is mainly due to the Oil spill and associated orders for pipes and other equipment was connected. This time, trucks, rail and air freight are slipping, reflecting a major slump, says Broughton.
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And while Broughton agrees that the shipping volumes in the In the past few months, the activity has weakened more sharply. The shipments in June were only 1.5% higher than in 2017, he says. If the trend continues, freight volumes will be lower in the second half of the year than two years ago.
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