Nowadays, financial news networks spend endless hours of programming around every upcoming jobs and GDP report they can get their hands on.
But only a few of them are actually worth paying attention to – and basing your trading decisions around.
Last Friday, for example, I told you how quarterly earnings reports could confirm the likelihood of another recession by March 2017.
And today, I’m going to give you another indicator that the richest traders use. It’s the “old school” way to know exactly how the economy is doing (in real time) without even turning on your TV.
It tells you whether the U.S. economy is speeding up or slowing down… and that shows you when to set your bullish and bearish trades.
This method dates all the way back to the 1800s.
And it’s as easy as looking out your window…
When the Big Rigs Stop Moving, So Does the Economy
When it comes to investing in the stock market, what happens in one or more crucial industries can largely indicate the state of the economy – and where it’s headed. And the trucking (or big rig) industry is one of the best indications of how “healthy” the economy is right now.
Trucking is an absolutely vital part of our economy. Pretty much everything we need in terms of goods and supplies needs to be transported from producer to seller so that you and I can buy them to live. Raw resources from mines and farms, for example, need to be hauled to a variety of manufacturers all over the country. Medical supplies need to be delivered to hospitals, health care facilities, retail stores, and wholesalers. And waste removal is necessary (for obvious reasons) and requires trucks.
The more big rigs you see on the highway transporting goods, the more the economy is strengthening. After all, when companies are selling more of their products, it generally means that consumer confidence is high and people are spending more of their money. This is great news for the trucking industry – and even better news for the economy.
And right now, the big rigs are saying the economy is in some trouble…
According to the most recent report from the Bureau of Economic Analysis, heavy truck sales have been down for almost two years now. This August alone recorded the lowest month of sales (29% decrease) in over three years.
Truck manufacturers take the hit first when truck sales drop, and usually that results in cutting jobs. For example, Navistar International Corporation (NYSE: NAV) reduced its staff by 1,400 people back in January as a result of declining sales. And engine manufacturer, Cummins, Inc. (NYSE: CMI), which is a Fortune 500 company, announced that it will be cutting jobs to the tune of 2,000 by the end of the year. Naturally, job layoffs are not a good reflection of a growing economy.
Take a look this chart, which shows the past 30-year correlation between heavy truck sales and the growth of the U.S. economy:
The salesnumbers are something to watch, of course, but the freight size and expenditures of the existing trucks are also worth paying very close attention to. Last month, David Ader, of the Bloomberg View, provided data from the Cass Freight Index that showed a 3.3% decline from July – and a 6.3% drop since August 2015.
While I’m not necessarily saying these numbers are solid evidence of a recession hitting within the next 12 months, these lower shipping volumes and weakened prices are certainly less than encouraging. And from an investing perspective, falling sales and lower production costs don’t translate well into earnings and revenue profit opportunities (unless you take a bearish position).
That’s what makes this “heavy truck sales” indicator work so well. You can gauge how the economy is moving simply by looking out your car window when you’re on the highway. The more trucks you see out there, the “healthier” the economy is (or is becoming). The fewer you see, the “sicker” the economy is (or is becoming).
And once you have a sense of where the economy stands, or is heading, you can extrapolate the sectors in which to invest and whether to go bearish or bullish.
Now this election will have much to do with where the economy goes from here. So keep a close eye on the roads – and set your trades accordingly.
Have a fantastic Halloween weekend!
And be safe…
Tom Gentile
