UH-OH: Orders Of Heavy Duty Trucks Have Collapsed

Almost everything everyone owns in America has spent at least some time in a truck.  As such, the health of the trucking industry is a pretty reliable indicator of the health of the economy.

In July, NAFTA Class 8 truck (basically heavy duty trucks) orders collapsed – 12,900 new orders were booked for trucks, short of the consensus of analysts, who were expecting 16,000-17,000.

And it’s not just seasonality that played a role. Nigel Coe, an equity analyst covering multi-industry stocks for Morgan Stanley, alerted clients in a recent note that “the large 23% drop to 12,900 was far greater than the 11% median decline observed for the June/July period since 1996, and that, to make matters worse, the disappointing July print “came on the back of a larger than normal seasonal step-down in June, when Class 8 orders fell 7% M/M to 16,690 – worse than the typical 3% M/M decline.”

Coe sees cause for concern that history will repeat itself: “This is yet another lead indicator that suggests an impending slowdown in the US – in the last upturn, the peak of the truck cycle has come 19-21 months before the peak of the production cycle.”

Here is a chart showing how the peak in truck sales led the peak in the U.S. production cycle by 19 months:

Truck sales leading indicator

Photo: Morgan Stanley

And here is another chart showing the truck sales indicator doing the same thing, except preceding the peak in industrial production by 21 months:

Truck sales leading indicator

Photo: Morgan Stanley

Coe concludes with a warning on the next few truck sales numbers: “Unless truck orders break out its current 12-18k monthly range YTD within the next 2-3 months, we would have to significantly increase the probability of a double-dip in 2013.”

There are also big political risks in 16 key countries around the world

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.