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The Tales Transports Tell - April 16, 2019

“Tangible Goods is the Heartbeat of the Economy”

We have referenced Cass Freight Indexes tangentially before, but the March Cass Freight Index Report is our focus this week. While the law of the instrument certainly applies, the report makes a good case to support its assertion that “tracking the volume and velocity of... goods has proven to be one of the most reliable methods of predicting change.”

At the macro level, the report warns that airfreight volumes in “Europe suggest that the region’s economy has cooled”, while volumes in “Asia suggest the region is already on the verge of, or is already entering, a recession”. In Europe, the Airfreight Index was down 6.7% in February, while the Asia Pacific Airfreight Index fell 13.6%, with the additional ominous note that the three largest airports “are experiencing the highest rate of contraction”. The good news is that Cass is “not yet finding much materially meaningful evidence of [contagion]”. Cass assures readers that the record on freight flow is impeccable, and “as long as the volume of freight continues to expand, we are not yet ready to turn outright bearish in our economic outlook for the U.S. domestic economy”.

Addressing the domestic economy, Cass warns that data in the coming months are poised to be lower, thanks to several parts of the economy running at full capacity (including infrastructure and the labor force). The report cautions that “the Cass Shipment Index... is now signaling economic stagnation with the potential for contraction”. Despite this headline, the underlying data is mixed. Dry Van data indicate that “the consumer economy is not only alive and well, but growing”, though there is concern about “the recent swoon in railroad volumes in auto and building material”. The auto industry, in particular, is “not adding to our bullish outlook” and “appears to be a headwind to growth in 2019”. Chemical shipments, “one of the best predictive indicators of U.S. domestic industrial activity”, “looked bullish for U.S. industrial production until recently”. Cass stated, “although it’s too early to definitively tell, it appears that until recently, the steel industry was accelerating”.

Finally, pricing is still reflective of a strong economy. Cass explains, “The March 6.1% increase [in the Freight Expenditure Index] signals that capacity is still constrained, demand is solid, and shippers are willing to pay up”, or more succinctly, the “data is reflective of stronger core pricing”.

Moral of the story? Given some cause for “growing economic concern”, Cass is preparing to “change tack” on their outlook and believes that “economic outlooks should be moderated or have contingency plans included or expanded”.