The 'bloodbath' in America's trucking industry has officially spilled over to the rest of the economy

Joel Page/Portland Press Herald via Getty Images
  • The inverted yield curve is a sinister sign of a forthcoming recession, and investors are freaking out that a downturn is nigh.
  • Indicators from the trucking industry have for months been warning of an economic recession, as truckers have seen their pay slashed in what has been called a “bloodbath” in the industry.
  • Freight recessions are often a leading indicator of when the rest of the economy is headed for a downturn.
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Truckers have for months been sounding the alarm about a “bloodbath” in their $US800 billion industry.

This year alone, some 2,500 truck drivers have lost their jobs as trucking companies large and small declare bankruptcy. Major carriers like J.B. Hunt, Knight-Swift, and Schneider have been forced to cut their annual outlooks.

A slew of other indicators have underlined turmoil in trucking. Transport research groups reported that the volume of trucks purchased in July fell to its lowest level in nearly 10 years. Rates in the spot market tumbled by 37% this July from July 2018. And the Cass Freight Index says year-over-year trucking volumes have slipped for eight consecutive months.


Read more:
‘I don’t know how long I can stay in business’: Truckers’ fears have soared to recession-level highs

Trucking is often looked at as a leading indicator of where the rest of the economy is headed. As 71% of America’s freight is moved on trucks, companies foreseeing needing fewer trucks is typically an omen of an economic downturn: If manufacturers are producing less and people are buying less, there’s less of a need to move goods.

“Because trucking participates in all phases of manufacturing, it increases as manufacturing starts to ramp up, giving it leading indication on economic growth,” Steve Tam, the vice president of ACT Research, previously told Business Insider.

TruckerBrianna Soukup/Portland Press Herald via Getty Images

When the rest of America is headed for a downturn, freight usually dips first, a new report from Convoy’s economic research division said. The industry went into a recession in April 2006, more than a year before the rest of the economy was clobbered by the Great Recession, starting in January 2008.

Rail and air cargo are also suffering. Air freight has declined year-over-year for eight consecutive months, according to the International Air Transport Association. The IATA head has said the China-US trade war is dragging down business.

And in rail, industry leaders agree that President Donald Trump’s trade war is wreaking havoc on the industry.

“The present economic backdrop is one of the most puzzling I have experienced in my career,” James Foote, CSX’s chief executive, told investors and analysts in a July earnings call. “Both global and US economic conditions have been unusual this year, to say the least, and have impacted our volumes.”


Read more:
Truckers can’t pay off their fuel cards – and it’s a ‘sure sign’ that more trucking bankruptcies are coming

And now it appears clearer than ever that the economy is headed for a recession.

On Wednesday, investors everywhere were spooked by an inverted yield curve, in which the spread between two- and 10-year Treasury yields fell below zero. The last time the yield curve inverted was 2007.

The stock market had its worst day of the year on that news. The Dow plunged 800 points.

“We’ve been in a bit of a perfect storm for the rates market recently,” Charlie Ripley, a senior investment strategist at Allianz Investment Management, told Markets Insider. “This has definitely been a strong signal for recession, so people are watching this very closely.”

A tumble in shipping doesn’t always foretell a recession for everyone else. The freight industry goes into recession twice as often as the rest of the economy, according to Convoy.

But the yield-curve inversion coupled with the 800-point plunge shows that the spooky indicators coming out of freight are starting to slam the rest of the economy.

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