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As Heavy-Truck Sales Go, So Goes the Economy

David Ader is an interest rate strategist. He has worked with Greenwich Capital, RBS and most recently with CRT.
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For most people, the economy’s ups and downs are best measured by famous indicators like monthly job reports and quarterly releases of gross domestic product. But students of the arcane took special notice earlier this month when the Bureau of Economic Analysis released some disturbing data that didn’t make anybody’s front page. In August, domestic heavy-truck sales fell 29 percent from the same period of 2015, the weakest month in well over three years.

Any drop that dramatic could always be an anomaly, but heavy-truck sales have been slipping for two years. Broad weakness in this category has historically been a reliable hint that a recession is on its way.

It’s too soon to be sure that this history is repeating itself. Brian Wesbury, chief economist at First Trust, says August’s plunge could reflect comparatively narrow economic problems like reduced domestic oil production and slackening mining activity. He also said that regulatory issues might have played a role if sales through mid-2015 were boosted by new requirements on trucks’ antilock braking systems. In that case, the August drop-off would just represent a return to normalcy.

Those are reasonable caveats. But there are other worrying signs. Caterpillar has said that used-machinery prices are down 10 percent from a year ago. That could also reflect the impact of oil and mining industry problems, yet a price decline in used construction equipment could have a dampening impact on new-equipment sales for big manufacturers.

Another warning comes from the Cass Freight Index, a measure of North American freight volumes and expenditures. In August, Cass noted that its Expenditure Index was down 3.3 percent from July and 6.3 percent from the previous August. These measures, too, have shown weakness over the last two years.

“August’s Cass Freight Index continued to signal that overall shipment volumes (and pricing) are persistently weak, with increased levels of volatility as all levels of the supply chain continue to try and word down inventory levels,” Cass said in its latest report.

Weak truck sales have sometimes given false signals about a recession over the last 30-odd years. But the sheer size of this August’s drop looks different. We’ve never seen a plunge this steep that didn’t foretell a recession.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
David Ader at dader2@bloomberg.net

To contact the editor responsible for this story:
Jonathan Landman at jlandman4@bloomberg.net