3 Charts Show Trump’s Economy Is Weaker Than People Think

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Last month the U.S. Bureau of Economic Analysis reported that March quarter’s GDP grew a stronger than expected 3.2%. However, when you remove the positive impact from inventories and trade the underlying economy only grew at a 1.5% pace.

Cass Information Systems along with Donald Broughton publish the Cass Freight Index on a monthly basis. It describes what it attempts to do, “As we try to navigate the ebb and flow of the economy, we don’t pretend to have any ‘secret sauce’ or incredibly complex models that have exhaustively analyzed every data point available. Instead, we place our trust in the simple notion that the movement of tangible goods is the heartbeat of the economy, and that tracking the volume and velocity of those goods has proven to be one of the most reliable methods of predicting change because of the adequate amount of forewarning that exists.”

In its April report it found that the Index was showing negative year over year growth for five months in a row. If this trend continues or starts to flatten out in negative territory this is not positive for the U.S. economy. This could be a situation as seen in 6 of the past 7 recessions that the economy was looking strong but turned negative in 7 months or lesswhen most economic indicators were showing it to be positive.

The report includes, “Bottom line, the data in coming weeks will indicate whether this is merely a pause in the rate of economic expansion, a retrenchment, or the beginning of an economic contraction. Evidence is accumulating that this is more than ‘just a pause.’ If a contraction occurs, then the Cass Shipments Index will have been one of the first early indicators once again.”

The chart below from Cass shows the relationship between its Index and GDP growth without the impacts from inventories and trade. While it does not always match quarter to quarter there is a fairly good relationship. As can be seen in the March 2019 quarter there was a large divergence between the reported 3.2% growth and the negative quarter to quarter change in the Cass Shipment Index.

With the second estimate for the quarter scheduled to be released on Thursday morning Broughton wouldn’t be surprised if it and the final report in June include downward revisions.

Railroad traffic is lower than last year

The Association of American Railroads or AAR tracks U.S. rail traffic and releases weekly, monthly and yearly data. Monitoring this activity provides another indication on how the economy is performing.

In its most recent release ending on May 18 it shows that total rail traffic is down 2% year over year. For 2019 the year to date year over year changes have been:

January:      Up 1.1%

February:    Down 0.2%

March:         Down 1.8%

April:            Down 1.9%

Also, the Petroleum and Petroleum Products category is the only one that is showing positive year over year growth. When its impact is removed the May 18 decline deteriorates from negative 2.0% to 2.5%.

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