The 4th Proxy: One Step Beyond?
Continuing from Record Low Unemployment? In deference to Salmo Trutta, a mentor who makes us better, a review and update dated July 18, 2019: All charts from TEU Be Cass-T Down? are YOY ROC or delta.
1st proxy: US Maritime - TEUS at LA Port negative (contraction) since January 2019.
2nd proxy: US All Freight Modes - Cass Freight Shipments declining since Jan 2018, going negative (contraction) since Dec 2018.
3rd proxy: This telegraphed what was coming... Air Freight - Asia Pacific declining since Jan 2017, falling off a cliff May 2018 and going negative (contraction) Sept 2018.
Those THREE proxies (US maritime, US combined rail-truck-sea-air and Asia Pacific air) represent what is known as TRIANGULATION of a signal. To be sure let's go One Step Beyond...
A FRED chart (provided by our mentor) for an additional freight mode or 4th proxy: US rail intermodal freight. YOY ROC in decline since... please sit down now... AUGUST 2010.
Since the August 2010 decline, the February 2016 spike appears to be an anomaly largely due to an increase in imports of vehicles and parts during that period, which is the largest commodity carried by rail.
Of late the intermodal rail proxy is in decline since March 2018, in contraction (negative) since February 2019.
Above, various proxies verified in decline since at least August 2010, and in contraction (negative) since at least September 2018. How do these freight volume proxies correlate to GDP?
When looking at freight volume vs GDP... First, remember two thirds or 66% of the US economy is service based which does not require much freight movement.
Second, imports (not produced domestically) are taken out of GDP, a decline in imports helps GDP look better, but detracts from freight movement and the overall economy.
Last but not least, when production gets into the hands of the consumer, healthy inventory turnover forces up freight volumes. Much like the import calculation perversion in GDP, inventory GROWTH or production which is sitting and not selling, is calculated as a GDP positive as opposed to a negative for freight volumes.
Thus, strong GDP numbers do not necessarily translate into a strong economic base, nor strong freight volumes. However, strong freight volumes do translate into a healthy economic base, manufacturing or production economy vs service based.
Courtesy of The Geography of Transport Systems 4th EDITION Jean-Paul Rodrigue (2017), New York: Routledge, 440 pages. ISBN 978-1138669574 , a MUST READ for inquiring minds.
Above, the TEU to GDP multiplier in decline since 1993, sinking below 1 in 2015. As TEU transportation growth has multiplied, GDP's have stagnated. One can readily see the declines PRIOR to dot.com and the GFC, what is 2015 to present? In any event, this ratio reconfirms the strength of the one way relationship viz. past freight volumes as a predictor for GDP, rather than cart before horse, GDP as a predictor for freight volume.
More to come in Writing On The Wall? Stay tuned, no flippin.
1st proxy: US Maritime - TEUS at LA Port negative (contraction) since January 2019.
2nd proxy: US All Freight Modes - Cass Freight Shipments declining since Jan 2018, going negative (contraction) since Dec 2018.
3rd proxy: This telegraphed what was coming... Air Freight - Asia Pacific declining since Jan 2017, falling off a cliff May 2018 and going negative (contraction) Sept 2018.
Those THREE proxies (US maritime, US combined rail-truck-sea-air and Asia Pacific air) represent what is known as TRIANGULATION of a signal. To be sure let's go One Step Beyond...
A FRED chart (provided by our mentor) for an additional freight mode or 4th proxy: US rail intermodal freight. YOY ROC in decline since... please sit down now... AUGUST 2010.
Of late the intermodal rail proxy is in decline since March 2018, in contraction (negative) since February 2019.
Above, various proxies verified in decline since at least August 2010, and in contraction (negative) since at least September 2018. How do these freight volume proxies correlate to GDP?
When looking at freight volume vs GDP... First, remember two thirds or 66% of the US economy is service based which does not require much freight movement.
Second, imports (not produced domestically) are taken out of GDP, a decline in imports helps GDP look better, but detracts from freight movement and the overall economy.
Last but not least, when production gets into the hands of the consumer, healthy inventory turnover forces up freight volumes. Much like the import calculation perversion in GDP, inventory GROWTH or production which is sitting and not selling, is calculated as a GDP positive as opposed to a negative for freight volumes.
Thus, strong GDP numbers do not necessarily translate into a strong economic base, nor strong freight volumes. However, strong freight volumes do translate into a healthy economic base, manufacturing or production economy vs service based.
There has never been an economic contraction without there first being a contraction in freight flows. Conversely, during the same period, there has never been an economic expansion without there first being an expansion in freight flows. - TEU Be Cass-T DownThe above demonstrates a one way relationship where past transportation values can lead and have predictive value for future real GDP. A recent study in GDP and transport Granger causality confirms our observations. To be sure once again, going One Step Beyond...
Above, the TEU to GDP multiplier in decline since 1993, sinking below 1 in 2015. As TEU transportation growth has multiplied, GDP's have stagnated. One can readily see the declines PRIOR to dot.com and the GFC, what is 2015 to present? In any event, this ratio reconfirms the strength of the one way relationship viz. past freight volumes as a predictor for GDP, rather than cart before horse, GDP as a predictor for freight volume.
"Since the 1990s, the multiplier effect has been declining, particularly since 2009. In recent years, the multiplier has dropped below 1, implying that 1% if GDP growth would be associated with 1% in TEU growth. This figure used to be 3% to 4%. It is thus becoming difficult to forecast traffic for facilities handling containers." - The Geography of Transport SystemsAt the end of the day, it would not surprise to see the current 2018 and 2019 ratio below 1 as a harbinger of where GDP is going. Like transports in general, freight volumes are an early warning system, and it would seem from all the above that as our mentor put it "the writing is on the wall so to speak".
More to come in Writing On The Wall? Stay tuned, no flippin.
Comments