US Transportation Industry Is Pointing to Economic Decline

If the transportation industry is any indicator — and it usually is — then the economy could be on the brink of a downturn.

When the economy is on the decline, the transportation sector is one of the first things to go. According to a report by the U.S. Bureau of Transportation Statistics (BTS), shifts in its index that track train, truck, boat and plane activity occur before shifts in economic growth, leading the wider economy by about four months.

The index has taken a negative turn starting in late 2015 and into the summer of 2016, according to CNBC calculations. While true turning points are usually identified after the fact, the recent downward momentum could signal a similar movement in the economy as a whole.

The freight Transportation Services Index (TSI) combines monthly truck tonnage, air revenue from freight and mail, weekly rail carloads, rail ton-miles, tons moved by water and pipeline transportation into a single indicator. A similar passenger index measures passenger miles and trips by plane, train and public transportation. Both measures have been found to change ahead of the wider economy.

“A very large portion of freight volume consists of raw materials and other intermediate goods, which may be ordered in anticipation of growing activity in the manufacturing sector,” BTS analysts wrote in their last historical review of the data.

Conversely, as downstream demand begins to falter, freight shipments also decline. While passenger travel is a consumer service and may be expected to lag or change with the economy, personal and business travel also seem to respond to economic confidence and sometimes leads other indicators.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza