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Falling retail sales and freight activity: Cause for concern?

By Colin Twiggs
August 19th, 2015 5:00 p.m. AEST (3:00 a.m. EDT)

Advice herein is provided for the general information of readers and does not have regard to any particular person's investment objectives, financial situation or needs. Accordingly, no reader should act on the basis of any information contained herein without first having consulted a suitably qualified financial advisor.


The rally in bellwether transport stock Fedex was short-lived and it is once again testing primary support at $164. Declining 13-week Twiggs Momentum, below zero, warns of a primary down-trend. Breach of support would confirm, suggesting a broad slow-down in US economic activity.

Fedex

The Freight Transportation Services Index reinforces this, declining since late 2014.

Freight Transportation Services Index

But the LoDI Index contradicts, continuing its climb.

LoDI Index
The LoDI Index uses linear regression analysis to combine cargo volume data from rail, barge, air, and truck transit, along with various economic factors. The resulting indicator is designed to predict upcoming changes in the level of logistics and distribution activity in the US and is represented by a value between 1 and 100. An index at or above 50 represents a healthy level of activity in the industry.

Growth in retail trade (excluding Motor Vehicles, Gasoline and Spares) also declined for the last two quarters but remains above core CPI.

Retail Trade ex-Gasoline, Motor Vehicles and Spares

On a positive note, however, light motor vehicle sales are climbing.

Light Motor Vehicle Sales

New building permits for private housing retreated in July but the trend remains upwards and new housing starts are increasing.

Housing Starts and Building Permits

Overall construction spending is also rising.

Construction Spending

Solid growth in spending on durables suggests further employment increases. This makes me reasonably confident that retail sales and freight/transport activity will recover. All the same, it would pay to keep a weather eye on Fedex and the transport indices.



Financial markets are supposed to swing like a pendulum: They may fluctuate wildly in response to exogenous shocks, but eventually they are supposed to come to rest at an equilibrium point and that point is supposed to be the same irrespective of the interim fluctuations. Instead, as I told Congress, financial markets behaved more like a wrecking ball, swinging from country to country and knocking over the weaker ones....It is difficult to escape the conclusion that the international financial system itself constituted the main ingredient in the meltdown process.

~ George Soros on the 1997 Asian Financial Crisis



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