Twenty years ago Prof. Edward Leamer made a big splash with a speech to the Fed in which he proclaimed that “Housing IS the Business Cycle,” highlighting how downturns in the housing sector tended to lead recessions by an average of 7 quarters. For today’s purposes, though, I want to focus on his conclusion, which was that after housing turned down, the next sector that turned down was durable goods spending by businesses.

An excellent barometer of durable goods spending by businesses in the past has been their purchase of heavy weight trucks. While car and light truck sales have been very noisy, sales of heavy weight trucks have had a very good record of turning down by -10% or more well before recessions, with the sole exception of 1970 (averaged quarterly in the graph below):

Which of course brings me to the latest data. For some reason FRED does not update their graph until several weeks after the BEA publishes the data, so let me tell you that in December seasonally adjusted sales of heavy trucks were .422 million annualized (light blue in the graph below). For the 4th quarter, on average, sales were .459 million (dark blue). As the below graph, which norms both values to 0 shows, each of these were the lowest such number, in 2 1/2 years:

Now let’s bring Prof. Leamer’s paradigm into the mix. Below I show the entire history of housing permits (red, left scale) vs. heavy weight truck sales (blue, right scale):

With the sole exceptions of the pandemic and the 1981 Fed-induced “double dip,” housing permits have not only always turned down before recessions, but also peaked before heavy weight truck sales. The lag time is very variable, but the median is about 6 months. 

Now let’s zoom in on that same graph for the last five years:

Housing permits peaked at the beginning of 2022. Heavy truck sales did so in early 2023. Permits took another small leg down since early 2024. I am very reluctant to rely on one month alone, but the suggestion from the three month average is that heavy truck sales may be doing the same thing now.

Per Leamer’s theory, the next domino to fall would be consumer durable goods orders. As the below graph shows, the broad measure of such orders appears to have peaked in spring 2024, but car and SUV purchases have continued to increase (again, December is not shown, but was actually higher than November at 17.1 million annualized):

It’s important to state that recessions are not about the *level* of data like sales, but rather their *trend.* Both housing and truck sales have continued down into the first part of recessions in the past. Housing permits were relatively stable during 2024. It may yet be the case with one or two months of data that heavy truck sales have stabilized at a lower level as well.

Still, that heavy truck sales may be sounding a warning is an added reason to keep an eye on all of the components of goods-producing employment when Friday’s employment report for December comes out, because if the downturn has spread to employment in the goods sector, odds of a recession in 2025 have risen indeed.

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