People are throwing the term “recession” around all over the place, Wolf Richter among them. That may not be technically correct. SLL thinks we’re not in a recession, we’re in a continuing depression that started at the turn of the century. However you want to look at it, it seems clear that the economy is entering another sinking spell. From Richter at wolfstreet.com:
Inventory glut, lousy consumer demand, the global economy…
Freight shipments by truck and rail in the US fell 4.9% in April from the beaten-down levels of April 2015, according to the Cass Transportation Index, released on Friday. It was the worst April since 2010, which followed the worst March since 2010. In fact, shipment volume over the four months this year was the worst since 2010.
This is no longer statistical “noise” that can easily be brushed off.
The Cass Freight Index is based on “more than $26 billion” in annual freight transactions by “hundreds of large shippers,” regardless of mode of transportation, including by truck and rail. It does not cover bulk commodities, such as oil and coal and thus is not impacted by the collapsing oil and coal shipments. The index is focused on consumer packaged goods, food, automotive, chemical, OEM, heavy equipment, and retail.
In a similar vein, the Association of American Railroads reported last week that loads of containers and trailers fell 7.5% in April year-over-year. “Intermodal” is a direct competitor to trucking. Combined, they’re a measure of the goods-based economy.
The Cass Freight Index is not seasonally adjusted. Hence the strong seasonal patterns in the chart. Note the beaten-down first four months of 2016 (red line):
And May is not going to look much better. The report:
May is usually a relatively strong month for freight shipments, but given the high inventories with ever slower turnover rates and the decline in new production orders, May could be another soft month.
These inventories are a doozie. Total business inventories have ballooned since late 2014, even as business sales have declined. On Friday, the Commerce Department reported the March installment of that story: total business sales (adjusted for seasonal and trading-day differences but not for price changes) fell once again, this time by 1.7% from a year ago; and business inventories rose by 1.5% from a year ago.
As a result, the crucial inventory-to-sales ratio, which tracks how long unsold inventories sit around and gather dust, has blown out to the same crisis level it had spiked to following the Lehman bankruptcy:
With sales down and inventories very high, businesses are trimming their orders to bring inventories back in line, and this is impacting the transportation industry.
Due to falling volume and “very soft rates,” as the report puts it, shippers have spent 8.3% less in April than a year ago, the lowest April spend since 2011. “With ample capacity available across the modes, competition for loads is holding rates down,” the report explains.
To continue reading: Recession Watch: Freight Volume Drops, Worst Level since 2010
