Transport Growth Slows – An Indication for the Economy

Just in Case you always wondered why the Dow Jones Transportation Index was important, the following from the WSJ explains why it is a precursor for the economy in the next 2 – 5 months.
The freight slowdown that began last year is rippling through the second-quarter results of big transportation companies, whose largely disappointing profits indicate the weak housing and manufacturing markets, on top of high fuel prices, remain a drag on economic growth.

Weaker consumer spending is prompting retailers and other customers to withhold inventories and delay the start of the peak shipping season, railroads and other freight carriers said.

The shipping rush was expected to begin in late summer and turn around flagging freight volumes. But UPS and Burlington Northern expressed uncertainty about the strength of the coming period, when trains, trucks, planes and ships are packed with goods from Asia and other overseas markets ahead of the holiday shopping season.

Many consumers, feeling pinched by escalating gasoline prices and higher prices on retail products, have reined in spending. Economists at Global Insight estimate that annualized consumer spending slid to 1.2% in the second quarter from 4.2% in the first quarter. Retailers have responded by putting off shipments to replenish their shelves, making them a "wild card" as UPS tries to prepare for the season, said Scott Davis, UPS's vice chairman and chief financial officer.