Stock market bulls received some sudden excellent news on Thursday.
It’s that the Freight Transportation Services Index hit a brand new excessive.
Freight Transportation Services? Few buyers take note of the data-release schedule for this index, a lot much less even find out about it. But its standing as a number one financial indicator rests on a robust statistical basis.
The Freight Transportation Services Index measures the quantity of the motion of freight by U.S. transportation corporations. It is calculated by the Bureau of Transportation Statistics inside the U.S. Department of Transportation. The index is up to date month-to-month, and the most up-to-date determine, reflecting knowledge for May 2018, was launched Thursday morning; the index registered its third new excessive in the previous 4 months, and is up 6.four %% over the trailing 12 months.
Downward development modifications in the Freight Transportation Services index have, at the least over the previous three many years, led financial slowdowns.
Why does this matter? According to research carried out by the Bureau, downward development modifications in the Freight Transportation Services Index have, a minimum of over the previous three many years, led economic slowdowns by a mean of 4 to 5 months. That might not look like an extended lead time, however have in mind that it’s uncommon to seek out indexes that are dependable coincident indicators, a lot much less main ones.
The accompanying chart additionally plots a companion index that displays passenger transportation in the U.S., in addition to a mixed index which displays each the freight and passenger variations. Even although these different indices don’t boast fairly nearly as good a monitor document as a number one financial indicator as the freight model, their report is respectable. And, as the chart exhibits, every of those different two measures is additionally at an all-time excessive.
It stands to cause that the freight transportation sector can be a number one indicator, in fact. If the economy is about to develop extra slowly, or flip down, anticipate freight corporations to be amongst the first to exhibit weak spot.
That the sector is not displaying any early-warning signs of such weakness is notably vital proper now, given widespread worries about an imminent trade war with China and other major U.S. trading partners. The freight transportation sector could be thought-about a “canary in the coal mine” in terms of the probability of such a trade war, and up to now the canary appears to be doing just fine.
To make sure, the newest Freight Transportation Services Index studying doesn’t quantity to a assure that the U.S. economy usually, or the stock market particularly, is on strong floor for the foreseeable future. Perhaps the greatest approach to consider it is by asking a rhetorical query: If the economy and stock market are about to go over a cliff, why hasn’t this proven up amongst freight-transportation corporations’ prospects?
For extra info, together with descriptions of the Hulbert Sentiment Indices, go to The Hulbert Financial Digest or e mail email@example.com . Create an e mail alert for Mark Hulbert’s MarketWatch columns here (requires sign-in).