Is our economy racing toward a double-dip recession ? Last week, Citigroup (NYSE: C) CEO Vikram Pandit argued that the U.S. will not slip back into recession. And yesterday, the banker matched actions to words, boasting of how Citi grew net earnings 73% in its fiscal third quarter. So far, it looks like Citi has sidestepped the recession risk. But the rest of us may not be so lucky.
In recent weeks, you see, a disturbing number of reports from the U.S. transportation sector have begun filtering out. What they suggest is that the U.S. is indeed heading for a return to tough times. According to The Wall Street Journal, "the traditional holiday peak in shipping volumes" never arrived in port on the California coast. Farther inland, we're seeing lower fuel consumption by U.S. truckers, indicative of reduced road trips, and fewer goods moving on the highways. Perhaps most troubling of all, traffic growth on U.S. railroads has reached levels that can only be characterized as anemic.
Buffett's favorite indicator points down
According to Warren Buffett, the oft-described Oracle of Omaha, there's no better indicator of the health of the U.S. economy than freight car loadings, which tally the amount of goods being transported on the continental railway system. But according to the American Association of Railroads, all is not well on the rails.
While certain sectors of the economy saw growth last month (motor vehicle carloads increased 8.2% year over year, which bodes well for Ford (NYSE: F) and General Motors (NYSE: GM)), other sectors sagged (grain deliveries, for example, were down 18.2%). Overall, AAR reports that September saw a mere 1.1% rise in U.S. carloads, a level that the association calls "consistent with an economy that is probably still growing, but far more slowly than any of us would want."
And it gets worse.
Truckers tell the tale
Shift your focus from railroads to actual roads, and you'll find a lot fewer tractor-trailers plying the asphalt this year than last. Last quarter, as you may recall, U.S. trucking firms such as Heartland Express (Nasdaq: HTLD) and UPS (NYSE: UPS) posted revenue-growth rates in the upper single digits, significantly higher than the freight landings growth AAR is now reporting. Even industry whipping dog YRC Worldwide did all right, growing revenues 12%.
But last week, Bloomberg reported that "U.S. truckers' fuel purchases dropped the most in the three months through September of any quarter in the past 10 years, excluding recessions, as deliveries slowed to retailers, factories, and consumers." Fuel purchases declined 4.3% for the quarter -- a pace that Ceridian-UCLA Pulse of Commerce Index analyst Ed Leamer predicts will "show up in other economic measures soon."
According to Leamer, what we're looking at here is a third-quarter growth rate of 0% for U.S. GDP. Unless that improves markedly -- and quick -- we could be in "an official recession" within "two or three more months."
Two if by land, what if by sea?
Indeed, if you scroll back on the supply chain, it's starting to look like the recession -- official or not -- has already arrived. The Wall Street Journal reports that at the Port of Los Angeles and the Port of Long Beach, "which together account for more than 40% of imports into the U.S. ... the rise in shipments that typically begins in July and lasts through early fall didn't happen this year."
Shipping volumes at these two uber-ports have declined back-to-back over the past two months, and when the September results arrive, the ports are expecting to record a double-digit drop for the month.
What this means to investors
The Journal tries to put a positive spin on things. According to the experts, what we're seeing in this dramatic drop in shipments is really just a retrenching by America's retail stores. Burdened by high inventories at the start of the last "great" recession, and burned by the discounts they had to offer to move inventory when consumer demand disappeared, retailers (says the Journal) may simply be running inventory-lite this year. They may have simply ordered less stuff, hoping to avoid getting stuck with a lot of unwanted stuff on the shelves come Christmastime.
This -- again according to the Journal -- could be a good thing for companies like FedEx (NYSE: FDX) and UPS. If consumer demand surprises to the upside in Q4, retailers may have to rush-order in goods by air to meet the sudden surge in demand.
Me, I have a different read on things: I think that if it walks like a duck, and quacks like a duck, it's probably a duck. And what I see here is ocean-borne shipping, roads, and rails all lining up in a row to quack "recession."
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