Freight Volumes Dropping by Most Measures, but ATA Measure Stays Strong

The freight transportation sector is generally considered a good indicator of the state of the US economy – including foreshadowing economic troubles ahead.

And lately that signals have mostly – but not completely – been delivering bad news on the economic front.

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Case in point: the Cass Freight Index for August – which measures US "shipments" – saw a 3.0% drop in August, following declines of 5.9% in July, 5.3% in June, and 6.0% in May. That caused Cass to write that the shipments index has gone from "warning of a potential slowdown" to "signaling an economic contraction."

But the data from the Cass' Linehaul Index, which measures US per mile truckload rates before fuel surcharges and other accessorials, offers a mixed picture.

As seen in the graphic below, rates – driven by supply and demand – have been falling but still staying above prior year until just recently. The July reading was about flat with 2018, while the August number was 2.6% below that same period in 2018 – and a worrisome 6.9% below the previous month, a sharp drop.

Cass says three factors are at work:

(1) Spot rates that are below contract rates by larger margins than appear sustainable

(2) Capacity additions by carriers

(3) A consumer and industrial economy in which growth is stalling

The railroads are also sending economic warnings, with some saying the sector is already in recessionary conditions.

In Q3, total carloads handle by large US railroads fell 5.5%, the biggest drop in three years, according to the Association of American Railroads. Much of the fall is the result of a slowing economy and drop in imports due to the tariff wars with China, pundits are saying.

"What's quite clear is that we're not yet at a trough. Trains have not yet bottomed," said Ben Hartford, an analyst with Robert W. Baird & Co.

However, a rail recession isn't necessarily a harbinger of a general economic downturn. The US economy continued to expand when carloads fell 2.1% in 2015 and 4.5% in 2016.

And Cass notes that its Shipments Index has gone negative before without being followed by a recession.

And somewhat oddly, the news from the American Trucking Associations (ATA) was more positive. While the Cass Freight Index shows year-over-year negative shipment volumes for the last nine months, the ATA says its Freight Tonnage Index is up solid 4.3% on a year-to-date basis, including a strong 4.1% increase in August.

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That led ATA economist Bob Costello to say that "truck tonnage shows that it is unlikely that the economy is slipping into a recession" – a much different take than Cass had on its data.

So what is the real story? Hard to say, but the ATA noted that its tonnage data is dominated by contract freight, which is performing significantly better than spot market freight this year.

Also, last week the Federal Reserve Bank of Atlanta did lower its Q3 US GDP projection to 1.9%, lukewarm growth for sure but hardly a recession.

SCDigest thinks it's clear the economy is slowing, but perhaps not to recessionary levels.

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