over 4 years ago • 1 min
American businesses are shipping fewer and fewer goods – everything from cars to coal – by rail this year, flashing a warning sign about the health of the world’s biggest economy.
Railroad carloads fell 5.5% in the third quarter from a year earlier. That’s the biggest drop in three years, and follows a decline in each of the previous quarters.
Freight is essential to the smooth running of the economy, so it’s often among the first sectors to suffer when businesses lose confidence. If a factory decides to slow production, for example, it’ll need fewer deliveries of materials – and fewer trains and trucks for transport.
Stock market watchers have tracked the interactions of transport stocks and the wider equity market for over a century. That’s meant the search for patterns of movement between the Dow Jones Transportation Average (DJTA) and the Dow Jones Industrial Average has become something of a cottage industry.
This week, technical analysts – who make predictions based on price charts – got excited when they spied a “death cross” pattern in the DJTA. In other words, the 50-day moving average dropped below the 200-day moving average – which these TA types reckon is a sign of further losses to come.
A broad recession is by no means guaranteed: America’s economy continued to chug along in 2016, even as carloads dropped 4.5%. But it is a reliable bellwether, so be sure to keep an eye on the direction of travel in transport stocks in coming months.
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