August Tons Dip

The adjusted truck tonnage index dipped nearly 7% in August, receding for only the third time this year. The unadjusted index slipped slightly, but it is 9.6% above its year-ago level. Could this be the beginning of a downward trend — and a leading sign of an overall economic slowing?

he answer depends on the outlook for different but interconnected economic areas. First, take industrial production, and specialty manufacturing, which trucking serves directly. The total index of industrial production rose solidly in August, propelled by a rise in durable goods. But the indicator was distorted by the resumption of General Motors operations after the strike.

Excluding transportation, the total index has remained essentially flat since May.

The National Association of Purchasing Managers index suggested an overall slackening. Although the economy has kept growing for nearly 7 1/2 years, in September the index remained unchanged at 49.4, which is right below the boom-bust borderline of 50 points.

In some ways, consumer spending is offsetting the negative effects of recessions in emerging markets and Japan — which made the trade deficit swell by a mammoth 62% in the year ending in July. August nominal disposable income and spending edged up 0.5% and 0.6%, respectively.

Yet spending has grown faster than income from last year, and the savings rate has sunk around historically low levels. So how are households affording to spend more additional dollars than they earn? First, take a look at the stock market: Double-digit returns in 1997 fueled the buying spree that has continued, coupled with the housing “extravaganza” fed by sagging mortgage rates, which recently hit a 30-year low.

Second, consumer credit has swollen, up 4.4% in August and 5.2% in July.

But we can expect a bear in Wall Street to put a lid on spending after households start feeling the pain from shrinking investment returns, although it’s impossible to say exactly when and to what extent. As long as competition from cheap imports and faltering export orders keep downward pressure on profits, the bear could hang around for a while.

Already, consumer confidence has started to falter, driven down by pessimistic expectations about the future, which could very well cause a drop in spending. The freight market would be impacted through lower expenditures on goods.

Looking ahead, durable goods orders rose 1.6% in August, but excluding transportation (again, to account for the GM effect), orders declined 2.1% in the month. Since consumption has not yet been affected, carriers should take this outlook as a word of caution for the coming months, but especially for the coming year.