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Although the temporary continuing resolution was signed last night, reopening the Federal government through January, needless to say, the reporting of economic statistics has not yet resumed, meaning that this morning’s scheduled reports on consumer inflation and retail sales for October were not released. So we must continue to rely on private data to give us a sketch of the current economic situation.

One of the most important blind spots for data during the shutdown has been on durable goods production and purchasing. According to the paradigm discussed by Prof. Edward Leamer 20 years ago, the typical progression of a downturn begins with housing, then durable goods such as motor vehicles, then consumer goods spending, and finally the coincident production and employment sectors.

The housing sector has been recessionary and worsening for many months, as units under construction and real residential construction spending turned down sharply earlier this year. Another early warning sector, heavy truck sales, also turned recessionary in the past few months.

But what of the next shoe to drop - motor vehicle sales? For that, we do have some insight via manufacturer and dealer reports of sales, and indirectly by motor vehicle shipments information.

Let’s begin with motor vehicle sales.  Here’s the historical look at heavy truck vs. light vehicle sales for the past 50 years (through August). Note that heavy truck sales typically turn down first, and turn down decisively months before the onset of recessions, vs. light vehicle sales, which are much more noisy and thus give a much more muddied signal:
 

While the official US DoT report for October was not released, via Bill McBride, Omdia (formerly reporting as Ward’s Auto) reported that in October, light vehicle sales came in at 15.3 million units annualized, the lowest in 15 months:
 

Here is the close-up of the past five years, with light vehicle sales normalized by -15.3 million units so that October shows at the zero line:
 

Typically, the three-month moving average of light vehicle sales has had to decline about -10% YoY for a clear recession signal, and often that hasn’t occurred until the very cusp of the recession. For a clear signal now, we’d need to see monthly sales of 14.2 million vehicles annualized, so even though October’s number was among the lowest in the past three years, we aren’t there yet. But even more recent weekly data from the AAR, showing YoY transportation of motor vehicles released just this morning, not only confirms the downturn, but suggests that it has intensified in the past few weeks:
 

In the last week, rail transport of motor vehicles and parts was down -9.4% YoY, and has been negative for the past four weeks. These are presumably vehicles being shipped to dealers, so this suggests that sales have continued to slump, and manufacturers’ shipments have been cut back.

If light vehicle sales have declined, suggesting at least a yellow caution signal from that sector, further data released just this morning suggests that the four economic shocks I outlined earlier this week (plus one I didn’t mention, the effect of the resumption of student loan repayments) are having a significant effect on sales in the wider goods-producing sector.

First, here is this morning’s update on rail intermodal traffic from the AAR:
 

This includes motor vehicles as well as many other goods. Note that this too has declined YoY in recent weeks. As of this week, it was down -8.7% YoY.

This negative trend was reinforced this morning by the Cass Freight Report for October, which showed a -7.8% YoY decline in truck shipments:
 

Here is a longer-term historical view of Cass Freight shipments, together with rail intermodal traffic YoY. 
 

Typically, it has taken a -10% decline in truck shipments to be consistent with an oncoming recession, together with a smaller decline, on the order of -5%, for rail intermodal traffic. 

Ordinarily, I have a lot of caution about relying too much on the Cass metric. It correlates well with manufacturing data, but as we have seen several times in the past 10 years, a significant downturn in manufacturing is not enough to warrant a recession call. Further, the Cass index tends to come in more negative than the official freight report, currently suspended, from the GoT.

But in the past few months, the Cass Report has been sending a significant negative signal.

I should point out that as of this week consumer retail spending continues to hold up well, up 5.9% YoY as of this week, as measured by Redbook:
 

In fact, generally speaking, it has improved since July, in consonance with the stock market’s gains, fueling a wealth effect.

To reiterate what I wrote at the beginning of this post, alternate private data can only provide us with a sketch of the state of the economy. More thorough official data, in particular as to sales, income, production, and inflation, are absolutely necessary. But the private data we do have for the past month and a half warrants a yellow caution flag for sales of motor vehicles and other important durable and consumer goods.

In other words, the next shoe may have dropped.

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