The Cass Freight Index® Report shows trucking shipments as negative for the 8th month.
Key Points
- When the December 2018 Cass Shipments Index was negative for the first time in 24 months, we dismissed the decline as reflective of a tough comparison. In January and February 2019, we again made rationalizations. When March was also negative (-1.0%), we warned that we were preparing to “change tack” in our outlook; when April was down (-3.2%), we said, “we see material and growing downside risk to the economic outlook.”
- With the -5.9% drop in July, following the -5.3% drop in June, and the -6.0% drop in May, we repeat our message from last two months: the shipments index has gone from “warning of a potential slowdown” to “signaling an economic contraction.”
- We acknowledge that: all of these negative percentages are against extremely tough comparisons; and the Cass Shipments Index has gone negative before without being followed by a negative GDP. However, weakness in demand is now being seen across many modes of transportation, both domestically and internationally.
- Although the initial Q2 ’19 GDP was positive, it was not as positive upon dissection, and we see a growing risk that GDP will go negative by year’s end.
- The weakness in spot market pricing for many transportation services, especially trucking, is consistent with the negative Cass Shipments Index and, along with airfreight and railroad volume data, strengthens our concerns about the economy and the risk of ongoing trade policy disputes. Weakness in commodity prices, and the decline in interest rates, have joined the chorus of signals calling for an economic contraction.
European Airfreight vs EuroZone PMI
European airfreight volumes have been negative since March 2018, but only by small single-digit margins (-1% to -3%), until November 2018. Unfortunately, since then, volumes have started to further deteriorate. Our European Airfreight Index was down a concerning -7.2% in April, only down -2.6% in May, before dropping -7.5% in June. Our preliminary July index is only down -3.4%, and consistent with the deteriorating Eurozone PMI. While the -6.9% July overall drop in London airfreight volume suggests that economic headwinds from Brexit remain, particularly since the largest rates of decline (down -11% to -25%) are being experienced in the lanes between (to and from) London and other EU airports. Although the European data is by itself distressing, it’s the Asian data that has become the most alarming.
Asia Pacific Airfreight
Asian airfreight volumes were essentially flat from June to October 2018, but have since deteriorated at an accelerating pace (November -3.5%, December -6.1%, January –5.4%, February -13.2%, March -3.6%, -10.2% in April, -8.5% in May, -8.6% in June, and preliminary July -7.9%).
Shanghai Airfreight
The volumes of the three largest airports (Hong Kong, Shanghai, and Incheon) are experiencing the highest rates of contraction.
Shanghai Airfreight Inbound vs Outbound
Shanghai Airfreight Inbound vs Outbound Tonnage
The inbound volumes for Shanghai have plummeted. This concerns us since it is the inbound shipment of high value/low density parts and pieces that are assembled into the high-value tech devices that are shipped to the rest of the world.
Hence, in markets such as Shanghai, the inbound volumes predict the outbound volumes and the strength of the high-tech manufacturing economy.
With the current level of civil unrest, leading to Hong Kong airport flight delays and cancellations, we can’t imagine that August data will be anything but worse.
Cass Shipments Index vs GDP
At first glance, the GDP for the 1st and 2nd quarter seems very inconsistent with overall freight volumes. Using the Cass Shipments Index as a predictive proxy, we did not expect the BEA to report 3.2% as its initial estimate or 3.1% as its revision in Q1 or 2.1% in Q2. As we have already explained, dissecting the contributing factors explains much of the disparity, and should point out that freight flows are a leading indicator. It often takes two to three quarters for the trends in freight to become reported economic statistics.
Although we also subdivide the economy via multiple other data feeds that represent smaller segments of freight flows, the Cass Freight Shipments and Expenditures Indexes are two of the strongest proxies for what is happening in the overall U.S. freight markets, and as a result they are strong predictive indicators for the U.S. economy.
Negative GDP in 2019
Based on all three months of data for Q2, the Cass Shipments Index is signaling that GDP may be negative, or at least come close to being negative, in Q3. If it does not, since reported GDP often lags the economic activity represented by freight flows, continued weakness in the Cass Shipments Index at the current magnitude should result in a negative Q4 GDP.
Industrial Production Supports Cass View
The Cass report is consistent with the today’s Industrial Production report and the Global Manufacturing recession already underway.
- Tale of Two Economies: Industrial Production vs Retail Spending
- A Global Manufacturing Recession Started and Trump’s China tariffs make matters much worse.
- Manufacturing Recessions vs Real Recessions: How Much Lead Time Do You Expect?
Cass suggests 1-2 quarters of lead time. Historically, lead time is zero on a quarterly manufacturing basis. See point 3 above.
Mike “Mish” Shedlock
With so much energy being spent villifying Trump, there is nothing left to actually fix economic problems…. and I think that distraction away from important things is 100% deliberate.
The USA was spending more than it could afford before Trump hit puberty. FDR created the ponzi schemes (social security and medicare) that have pyramided to absorb the entire tax intake.
Gutting manufacturing (aka high paying jobs) to fund union corruption and eco-terrorism is a self inflicted wound that Amercians did to themselves.
An education system that ignores useful skills and instead focuses on feelings and safe spaces, while charging a fortune… that is another self inflicted wound. Are your children really so incompetent that we need to spend $70K per year to have a whiney left wing “professor” teach your children to whine like babies?
Who cares about freight. Freight is for commerce. Freight is for people who get things done. Not the USA.
Mis-educated whiners hell bent on maximizing government benefits while insisting “the other guy” pay more taxes. That is the USA.
Cass?
Oh, just another chart that screams “mid cycle”
Just a point of clarification here…The Cass Freight Index is for North America. The transportation modes include truck, rail and air. I don’t know whether inland waterways are included. Moreover, the current July report gives perspective for airfreight in Europe and East Asia.
The host is switching the lights on and off to tell us all the party is over, but most people are shouting and drunk, so it will take some time for them to get the message – fair play, most people don’t obsess over this shit, but the nerds who didn’t drink the spiked kool aid are noticing, and we are tut-tutting.
Recession indicators everywhere(when that is all you look for), but recession refuses to come.
Recessions are ALWAYS backdated.
NBER is official caller for US recessions.
Last go round NBER – finally – made the call in December of 2008 … for a recession they pegged start in December of 2007.
Oh, one other thing. Most initial reports have (multiple) revisions. At economic inflection points things can get real wonky. With revised data a far cry from initial.
Since Trump got in, the only area of growth we have really had is war related.
Well, the BS component has spiked as well – don’t sell him short!
So you think the economy was better before his election? Based upon what?
just look at a chart of the S&P 500 the first year is Obamas policy. Nothing Trump had done would have taken hold yet from 2018 on the market is basically flat the 1% who got the giant tax break forgot to pee on the rest of us.
Mish Talk is rapidly turning into an infantile, extremist left wing echo chamber.
I notice Mish has banned a lot of right wing commenters, but he keeps the left wingers. After you see it happen multiple times, gotta think Mish is doing it on purpose. Mish can claim to be libertarian or whatever, but his actions speak louder than his words
The flying car is the answer. Everyone will want one, and we can let the bicycles have the streets and highways. They had them in Blade Runner, LA 2019, and Back to the Future, 2015. There is lots of room vertically, and AI can handle the details of using them.
40% of S&P earnings come from international production and consumption. This recovery was never a strong one and merely papered over. The US consumer is tapped out because of debt again. This time there is no housing ATM to keep the boom going. The rising tide lifted all boats. The falling tide will lower them. The world needs to stop with the extending and pretending.
Are you sure there’s no housing ATM. Mortgage balances are strong and interest rates are low. I think the impediment is more towards people not wanting to go deeper into debt instead of not having the ability to borrow.
When is MS gonna call out the cooked phony govt numbers,lets see GDP been deep negative for ohhh say ….. A DECADE, I don’t pretend or play make believe,nor do I accept the blatant bs propaganda in the bs govt economic data.Live by the sword…die by the sword,and like every banana republic before it the US will collapse under a wall of propaganda and make believe regardless of how much they can print out of thin air!
I think you have a point. My problem is I don’t know which are phony and which are not. Indeed, if they all are what do we use to get our reading on what’s happening? Calling them out is one thing, finding useful metrics (I think Cass may be one) is entirely another. Or perhaps I misunderstood your point.
I see your point also but GDP would not be negative for a decade, even if you removed government spending. As an example, 2018 was a record year for my wife’s manufacturing company (Paccar). They are still close to record build rates for both divisions of trucks.