Wednesday, June 17, 2015

The Freight Transportation Services Index and Future Economic Growth

Updated October 2015

Nearly a year ago, I posted an article that looked at one of the very few leading economic indicators that can be used to give us a sense of the economy's direction.  Rather than using trailing indicators like consumer spending, the housing market or employment that provide us with data that is already at least a month old in most cases, this indicator tells us where the economy is headed rather than where it has already been.

The Transportation Services Index or TSI is the broadest measure of United States domestic transportation services and reflects real monthly changes in both passenger and freight transportation services within the U.S.  It includes three components; a freight index (the freight TSI), a passenger index (the passenger TSI) and a combined or total index (total TSI).  The freight component of the TSI, which includes five modes of transportation (highway, air, railway, waterway and pipeline), appears to show a very close relationship with the pattern of national economic growth.  The TSI includes only domestic for-hire transportation that is operated on behalf of or by a company that provides freight or passenger transportation services to external companies for a fee.  Not included is transportation in vehicles owned by private firms providing services to that firm, taxis and intercity bus services and noncommercial passenger travel which includes trips in the family car.  The for-hire component constitutes roughly 60 percent of total national transportation services.

Here is a table showing the data sources for the TSI:

A 2009 study (updated in December 2014) by Peg Young and Ken Notis at the United States Department of Transportation observed that the Bureau of Transportation Statistics freight Transportation Services Index (TSI) showed a decline or deceleration a full 18 months before the start of the Great Recession.  This suggests that the TSI may, in fact, prove to be a useful indicator of economic downturns.  In addition, on average over the past three decades, the freight TSI turned downward 4 to 5 months before the broader economy began to slow as shown on this table:

Here is a graphic showing the changes in the freight TSI since 1979 and economic cycles (shaded grey) over that period with the turning points (or decelerations) noted as month and year:

Now, let's look at the freight TSI data from January 2000 to July 2015:

It's quite clear that since November 2014, the freight TSI has plateaued and is showing signs of declining.  At the very least, its growth trend from the end of the Great Recession in June 2009 has ended.

Here is a closeup of the data over the past year:

The previous curve looks substantially different than it did over the period between July 2013 and July 2014:

If the authors' analysis is to be believed, it certainly looks like a deepening economic slowdown could be in the cards, an issue that will have a significant impact on whether or not the Federal Reserve is able to launch its program of rising interest rates.  


  1. I would like to have seen what effect oil rail traffic from the shale oil patches have skewed the index. The charts seem to me to reflect the huge increase in traffic associated with oil production and now a decline in it because of lower oil prices and oil rig declines.

    We need to see a graph that excludes this traffic to get a clearer picture of how all goods and services have been doing

    1. All of what you write about is part of our GDP and a critical part of jobs in the well paying energy sector. A clearer picture will not change that.
      I'm under the impression oil production has yet to fall off much even with less drilling and lower prices. If I'm correct it will take a while before the big drop takes place.

  2. You also need to consider the effects of weather. Winter 2013 caused massive disruptions that caused substantial spikes in 2014. We are now seeing markets even out after that over correction.

  3. The chart seems to be a little hard to read as far as putting a time table on its action, however it ties closely with the GDP and its decline from the government "pre-election" spending in 2014. That was when America posted a quarter of 5% GDP growth, but it was tied to a 10% jump in federal spending, mostly on Pentagon hardware. This just happened to be the biggest increase in federal spending since 2009 when the Obama administration put in place a huge economic stimulus package.

    When you mix in some upbeat numbers concerning job creation, falling oil prices, ever higher stock market prices with new record highs and many people have the impression we are on a roll. As the charts show momentum has vanished. Beware, weird crosscurrents are clouding our economic future the article below delves into a few of the ugly facts that might quickly bring the markets back to reality