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Slowdown in Shipments May Be Early Indicator of Pending Recession

Slowdown in Shipments May Be Early Indicator of Pending Recession - Featured Illustration

A downward trend in US truck, rail, and freight volume has entered its second month. After documenting a 6% year-over-year drop in May, Cass Freight Index says June volume was 5.3% lower than in June 2018.

Donald Broughton, author of the Cass report, and Joseph LaVorgna, chief economist at research company Natixis, agree that the data reflects a slowdown in the US economy. Since shipments correlate directly with demand for consumer and industrial goods, the downward trend may be an early signal of an impending recession.

Broughton notes that historically, a decline or growth in shipments most often predicts a significant change in the economy within the next six months. LaVorgna agrees that the data should be taken seriously. “I think it’s a troubling signal,” he says.

Major causes of the decline in shipping activities include the state of the global economy and the US trade war with China, Broughton says. These factors have reduced US imports and exports, resulting in fewer deliveries of goods to seaports and airports. The trade war has also affected investors’ confidence, which has led to reduced demand for computers and other equipment.

Car sales are already down by 1% year-over-year, Broughton says, and demand for construction materials is down 5%.

Not everyone agrees that the shipping slowdown means we are on the precipice of a recession. The Journal of Commerce’s Bill Cassidy notes that the Cass Index is still historically high.

These indicators do not necessarily mean that a recession is on its way, but slowing GDP growth and anticipated interest-rate hikes by the Fed suggest that experts are preparing for the worst.


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