In the first days of November, we showed that global trade is in freefall with "China Container Freight At Record Low; Rail Traffic Tumbles, Trucking Slows Down [6]." Now, Goldman has finally caught up, and writes that "indicators of freight activity—the volume of goods carried by truck, rail, air or ship—have slowed recently, raising concerns about the broader health of the US economy."
This is how Goldman finally admits what we have been saying for the past two years: the biggest threat to the US, and global, economy is the gradual and ever faster slowdown in trade, something which central banks are incapable of "printing."
Freight transportation data can be a useful gauge of activity in the goods-producing sectors of the economy, for obvious reasons. Products need to move from manufacturers to end consumers, and will be carried along the way by at least one of the four modes of transportation—truck, rail, air or ship—and frequently by multiple types (“intermodal” transport). The economic indicators measuring US transportation activity are also relatively transparent—counting things like the number of containers or rail cars—and in some cases quite timely. They are therefore popular among investors. Recently some of these measures have slowed, raising concerns about the broader health of the US economy.
And here is Goldman doing its best recap of our charting, using its own words:
- Railcar traffic, for example, has been notably weak, falling by about 3% from a year earlier based on monthly data (Exhibit 1, left panel).
[7]
- Data on trucking activity—which is nearly four times as large as rail activity by the dollar value of gross output—offers a similar message. The American Trucking Association’s truck tonnage index showed an impressive recovery after bottoming in early 2009, but growth slowed over the last year (Exhibit 2). Year-over-year growth was +1.7% as of Q3, down from +4.2% in Q4 2014 and +9.0% in Q4 2013.
- Air freight volumes as well as port traffic have also slowed, and in both cases the data hint that weakness in foreign growth is playing a role. Exhibit 3 shows the cargo “ton-miles” (i.e. 2,000 pounds/907 kilograms of cargo transported one mile) of US air carriers, divided into domestic and international operations. Total cargo ton-miles have declined by about 3% over the last year, with a 6% decline in international shipments but a 1% gain in domestic traffic (albeit from a low base).
- The largest ports in the US report monthly on their volumes of loaded inbound and outbound shipping containers—the ubiquitous symbol of global trade. In the year to October, total loaded container traffic fell 1.2%, reflecting a 0.6% gain in inbound containers and a 4.3% decline in outbound containers (Exhibit 4). A large portion of outbound port activity reflects trade with Asia (70-90% for the largest West Coast ports and about 35% for the Port of New York/New Jersey, the largest on the East Coast), and the observed weakness may therefore reflect tepid demand for US goods from the region.
We dread to imagine what would happen to Goldman's economists if they were to find out that a third of all containers shipped from Long Beach harbor are empty... [8]
Finally Goldman's attempt to put a silver lining on what is clear collapse in global trade:
- The relative performance of different aspects of freight volumes mirrors what we see in other statistics, with greater weakness in areas closely related to commodities, heavy industry and exports, and somewhat better activity for traffic more associated with consumer goods (e.g. intermodal rail volumes) and imports. The contrast in the airline industry is particularly striking: while cargo ton-miles are down 3% year-over-year, passenger ton-miles are up about 5% over the same period. Sluggish freight volumes are therefore more confirmation that activity in goods-producing sectors of the economy remains soft.
In summary, a perfect time for the Fed to hike rates.