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3 Things Under the Radar This Week

1. A Truckload of Troubles for the Consumer Lies Ahead

Whenever questions are raised about potential wobbles in the economy, the strength of the U.S. consumer has been the go-to answer for many. But recent findings pointing to weakness in the trucking industry suggest the consumer may not be as strong as many expect in the lead-up to the crucial holiday period.

The DHL Supply Chain/FreightWaves Pricing Power Index -- a measure to gauge demand and supply in the trucking industry -- recorded a reading of 25 late last week, according to a report released by FreightWaves earlier this week.

A reading below 50 points to weaker demand and overcapacity and indicates that suppliers have the power to negotiate rates, which is somewhat puzzling as carriers tend to have the advantage in run-up to the holiday season as retailers increase inventory.

A deeper look into trucking volumes also throws some shade on those who bet the consumer will continue to deliver.

The Outbound Tender Volume Index, a real-time monitor of trucking load volumes across the U.S., showed demand is in decline entering the holiday season.

"Week-over-week load volumes are down 10 basis points,” analysts at Freight Waves said. While it is too early to call a trend, deteriorating economic indicators combined with weakness in OTVI.USA is worrisome."

Signs that the consumer is not boasting the deep pockets they once had has also prompted some to warn the sunny spell for the consumer spending may be nearing an end.

“With wage growth no longer accelerating, and employment growth cooling, growth in consumer spending is expected to moderate as we enter 2020,” said Gregory Daco, chief U.S. economist at Oxford Economics in New York.

2. Fed Model Predicts Sharp GDP Drop

While this week’s third-quarter U.S. GDP came in higher than expected at an annual rate of 1.9%, the latest numbers are predicting a continuation of the slowdown.

The Atlanta Federal Reserve’s GDPNow model predicts that fourth-quarter GDP will drop to a rate of 1.1%.

Friday’s measure of 1.1% was sharply lower than the 1.5% annual rate predicted the day before, despite strong October nonfarm payrolls numbers.

“After this morning's release of the employment report by the U.S. Bureau of Labor Statistics, the Manufacturing ISM Report On Business from the Institute for Supply Management, and the construction spending report from the U.S. Census Bureau, the nowcasts of fourth-quarter real personal consumption expenditures growth and fourth-quarter real gross private domestic investment growth decreased from 2.3% and -0.7%, respectively, to 2.2% and -2.5%, respectively," the Atlanta Fed said.

3. Is Inflation Really That Tame?

After the Federal Reserve cut interest rates by a quarter point for the third time this year, Fed chief Jerome Powell stressed that inflation was well contained.

It’s well known that the Fed’s favorite measure of inflation is the core personal consumption expenditures (PCE) index, which excludes the volatile food and energy components.

This week the government reported that the September core PCE index stayed steady at 1.7% year over year.

But the Fed also has another inflation model it can look to, which shows prices rising more substantially.

The trimmed mean PCE inflation rate “involves looking at the price changes for each of the individual components of personal consumption expenditures,” according to the Fed. “The individual price changes are sorted in ascending order from ‘fell the most’ to ‘rose the most,’ and a certain fraction of the most extreme observations at both ends of the spectrum are thrown out or trimmed. The inflation rate is then calculated as a weighted average of the remaining components.”

The trimmed mean PCE inflation rate over the 12 months ended September was 2.1%, above the Fed’s target rate, according to the Dallas Fed, which calculates the rate.

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