Transportation: Leading or Lagging Indicator?

Is transportation still a leading economic indicator? I’m beginning to wonder.

Over the past few weeks the freight economy has seemed almost bullish even as the Economic Cycle Research Institute and others warn of impeding recession.

Can we really be headed back into recession when freight demand at both truckload and less-than-truckload companies was reportedly increasing in the third quarter and North American railroads broke records for intermodal loadings?

Yes, we can, says transportation analyst and consultant Satish Jindel, president of SJ Consulting Group, Pittsburgh. Jindel says cargo watchers are missing a growing disconnect between the freight-based economy and the economy as a whole.

“I think people are living in the past,” Jindel says. Trucking executives watching loaded trailers roll out of their terminals may not see signs of impending economic retrenchment because they “touch” less of the economy than they once did, he says.

“The trucking industry is only touching about 40 percent at the maximum of the total GDP,” Jindel told me Wednesday as we discussed carrier earnings. “The other 60 percent relates to the service sector, which doesn’t ship or produce freight.”

The balance is actually more lopsided than that. Goods accounted for about 35 percent of personal consumption expenditures in the second quarter of 2011 and services 65 percent, according to the U.S. Bureau of Economic Analysis.

Jindel says that underscores the growth of the “Facebook Economy,” in which businesses such as Facebook and Google (which saw revenue expand 24 percent last year to $29.3 billion) generate billions of dollars in revenue making … nothing.

No product that can be packaged and shipped, at least. Add to the Internet giants the banking and insurance industries and other professional services — even transportation, which accounted for about 4 percent of services spending.

The more GDP shifts toward services, the less relevant freight shipping may become as an overall economic indicator, Jindel argues. “The goods sector may not be showing weakness, but the services side may show weakness that outstrips it.”

He believes public trucking companies will produce some positive results when third-quarter earnings are released, with higher revenue and profit. But domestic carriers may have a harder time sustaining volume in the fourth quarter.

“There’s a time lag” for domestic truck and rail carriers handling imported consumer goods, he said. Even if orders and port volumes drop, “the supply chain is already filled with goods moving and they can’t stop them.”

Contact William B. Cassidy at wcassidy@joc.com. Follow him on Twitter at @wbcassidy_joc

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