Freight Transportation Services Index Archives

October 9, 2017October 9, 2017

How long will the bull market last?

US markets are clearly in a bull phase, with the Dow, S&P 500 and Nasdaq making strong gains. A rising Freight Transport Index highlights the broad up-turn in economic activity.

Freight Transport Index

Low corporate bond spreads — lowest investment grade (Baa) minus 10-year Treasury yield — and VIX below 15 both reflect bull market conditions.

Bond Spreads

Real GDP is growing around a modest 2 percent a year. Low figures are likely to continue, with annual change in hours worked (total payroll * average weekly hours) falling to 1.2 percent in September.

Real GDP

Money supply (M1) growth recovered to a balmy 7 percent (p.a.) after a worrying dip below 5 in early 2016.

M1 Money Stock

The Fed may be reluctant to tighten monetary conditions but will be forced to act if inflation starts to accelerate. Annual growth in hourly wage rates turned above 2.5 percent in September, signaling underlying inflationary pressure.

Average Hourly Wage Rate - Annual Growth

Another dip in M1 below 5 percent growth would warn that monetary conditions are tightening. From there, it normally takes 12 months to impact on the broad market indices.

M1 Money Stock and Fed Funds Rate

At this stage it looks like another 2 years of sunshine before the storm. But one false tweet and we could face an early winter.

July 21, 2017

VIX hits record low

The CBOE Volatility Index (VIX) made a new low of 9.30 indicating record low levels of stock volatility. High levels of stock buybacks and large ETF fund inflows may both have contributed, but this is only the third time in its 27-year history that index has broken below 10%. The first was in late 1993. The second, in late 2006, was followed a year later by a massive market snap-back. This time is no different. Volatility is unlikely to remain at such low levels and eventually we will see a market down-turn, accompanied by high volatility, but there is no crystal ball that can tell us whether this will be in one year or five.

CBOE Volatility Index (VIX)

Corporate bond spreads are also falling, with the spread between lowest investment grade Baa (10-year) and equivalent Treasury yields at their lowest point since 2008.

Corporate Bond Spreads

Source: St Louis Fed & Moody’s

The yield curve is flattening but remains comfortably above a flat or negative yield curve when
the yield differential (10-year minus 3-month yields) falls below zero. A negative yield curve is a reliable warning of recession within 12 months.

Yield Differential

Source: St Louis Fed

The Freight Transportation Services Index displays a steady increase in economic activity.

Freight Transportation Services Index

Source: St Louis Fed & US Bureau of the Census

And the S&P 500 continues its advance towards 2500.

S&P 500

Target 2400 + ( 2400 – 2300 )

September 14, 2015

Not much wrong with the US economy

Profit margins in the US are contracting, with the second quarter showing a 6.0% decine in profit per unit of real gross value added (Nonfinancial). Contraction of greater than 10% would be cause for concern, but we need to dig a little deeper.

Earnings per share for the S&P 500 Index declined for the last two quarters and is projected to decline for the next two quarters as well (Q2 which is 98.6% complete and Q3 2015).

The sharp fall in index earnings is primarily caused by losses in the Energy sector. Other sectors are reasonably healthy.

Another cause for concern is bellwether transport stock Fedex. Commencement of a primary down-trend normally warns that economic activity is contracting. Freight revenue for the fiscal fourth quarter increased by only 1%, while ground revenue increased by 19%. Slower earnings growth due to a lag in fuel surcharges and integration challenges with the acquisition of TNT may both be weighing on the stock.

The Freight Transportation Services Index, however, has turned upwards.

And the LoDI Index continues to climb.

The LoDI Index uses linear regression analysis to combine cargo volume data from rail, barge, air, and truck transit, along with various economic factors. The resulting indicator is designed to predict upcoming changes in the level of logistics and distribution activity in the US and is represented by a value between 1 and 100. An index at or above 50 represents a healthy level of activity in the industry.

Spending on durables remains promising, with light motor vehicle sales rising.

And construction spending (adjusted for core CPI) climbing steeply.

The ISM Manufacturing PMI Composite Index remains above 50, indicating expansion, but is softer than it has been for a while.

The Leading Index from the Philadelphia Fed, however, at a healthy 1.57%, continues to project a healthy economic outlook.

Despite the falling Fedex stock price and softer PMI, there does not appear to be much wrong with the US economy. The positives outweigh the negatives. Analysts’ optimism about an fourth quarter upturn may be a little premature, but does not appear far off-track.

August 18, 2015

Falling retail sales and freight activity: Cause for concern?

The rally in bellwether transport stock Fedex was short-lived and it is once again testing primary support at $164. Declining 13-week Twiggs Momentum, below zero, warns of a primary down-trend. Breach of support would confirm, suggesting a broad slow-down in US economic activity.

Fedex

The Freight Transportation Services Index reinforces this, declining since late 2014.

Freight Transportation Services Index

But the LoDI Index contradicts, continuing its climb.

LoDI Index

The LoDI Index uses linear regression analysis to combine cargo volume data from rail, barge, air, and truck transit, along with various economic factors. The resulting indicator is designed to predict upcoming changes in the level of logistics and distribution activity in the US and is represented by a value between 1 and 100. An index at or above 50 represents a healthy level of activity in the industry.

Growth in retail trade (excluding Motor Vehicles, Gasoline and Spares) also declined for the last two quarters but remains above core CPI.

Retail Trade ex-Gasoline, Motor Vehicles and Spares

On a positive note, however, light motor vehicle sales are climbing.

Light Motor Vehicle Sales

New housing starts are edging upwards while building permits jumped sharply, indicating further increases.

Housing Starts and Building Permits

And overall construction spending is steadily rising.

Construction Spending

Solid rises in spending on durables suggests further employment growth. This makes me reasonably confident that retail sales and freight/transport activity will recover. All the same, it would pay to keep a weather eye on Fedex and the transport indices.

August 17, 2015

Falling retail sales and freight activity: Cause for concern?

Fedex

The Freight Transportation Services Index reinforces this, declining since late 2014.

Freight Transportation Services Index

But the LoDI Index contradicts, continuing its climb.

LoDI Index

The LoDI Index uses linear regression analysis to combine cargo volume data from rail, barge, air, and truck transit, along with various economic factors. The resulting indicator is designed to predict upcoming changes in the level of logistics and distribution activity in the US and is represented by a value between 1 and 100. An index at or above 50 represents a healthy level of activity in the industry.

Growth in retail trade (excluding Motor Vehicles, Gasoline and Spares) also declined for the last two quarters but remains above core CPI.

Retail Trade ex-Gasoline, Motor Vehicles and Spares

On a positive note, however, light motor vehicle sales are climbing.

Light Motor Vehicle Sales

New building permits for private housing retreated in July but the trend remains upwards and new housing starts are increasing.

Housing Starts and Building Permits

Overall construction spending is also rising.

Construction Spending

Solid growth in spending on durables suggests further employment increases. This makes me reasonably confident that retail sales and freight/transport activity will recover. All the same, it would pay to keep a weather eye on Fedex and the transport indices.

[August 19th – This post was updated for Fedex and today’s release on Housing Permits and New Building Starts]

February 12, 2015

US Recovery on Track

The Leading Index calculated by the Philadelphia Fed has, in the past proved a reliable indicator of economic conditions. The latest value of 1.74% (December 2014) reflects a healthy recovery.

Philadelphia Fed Leading Index

Light vehicle sales also indicate consumer confidence. Annual sales to December 2014 of 16.8 million units are in the same realm as the buoyant conditions of 2004 to 2007.

Light vehicle sales

The Freight Transportation Services Index suggests that broader economic activity is also soaring.

Freight Transport Index

The S&P 500 successfully tested support at 2000, recovery above the declining trendline suggesting that the recent correction is over. Penetration of the descending trendline on 13-week Twiggs Money Flow would strengthen the signal. Breach of 1980/2000 is unlikely. Breakout above 2080 would indicate a fresh advance; follow-through above 2100 would confirm.

S&P 500 Index

* Target calculation: 2100 + ( 2100 – 2000 ) = 2200

CBOE Volatility Index is declining. Breakout below the recent triangle would indicate that risk has reverted to ‘Low’ from ‘Moderate’.

S&P 500 VIX

Europe

Dow Jones Euro Stoxx 50 index is consolidating above support at 3300 despite tensions between Greece and its Northern EMU partners. Respect of 3300 would indicate a fresh primary advance, with a long-term target of 3600*. Follow-through above 3425 would confirm.

Dow Jones Euro Stoxx 50

* Target calculation: 3300 + ( 3300 – 3000 ) = 3600

Asia

China’s Shanghai Composite Index found support at 3050, but declining 13-week Twiggs Money Flow warns of medium-term selling pressure. Failure to break resistance at 3400 is increasingly likely, and reversal below 3050 would warn of a test of the primary trendline at 2700. The stimulus effect of lower energy prices may cushion the fall but economic activity is declining and the PBOC faces a number of challenges.

Shanghai Composite Index

Japan’s Nikkei 225 Index has benefited from aggressive monetary expansion by the BOJ and is testing resistance at its 2007 high of 18000. Rising 13-week Twiggs Momentum reflects a healthy up-trend. Breakout above 18000 would signal another primary advance, with a target of 20000*.

Nikkei 225 Index

* Target calculation: 18000 + ( 18000 – 16000 ) = 20000

Long-term momentum of India’s SENSEX has been slowing since mid-2014. A fall below zero is unlikely, but would warn of a trend reversal. Respect of the secondary rising trendline would suggest another test of 30000, while breach would test primary support at 26500.

SENSEX

* Target calculation: 29000 + ( 29000 – 27000 ) = 31000

Australia

Australia’s ASX 200 is retracing to test its new support level at 5660. Respect would confirm a fresh primary advance. 13-Week Twiggs Money Flow holding above the zero line indicates medium-term buying pressure. Breakout above the descending flag would signal another advance, with a target of 6150*. Failure of support is unlikely.

ASX 200

* Target calculation: 5650 + ( 5650 – 5150 ) = 6150