Freight volumes in the United States and around the world are falling, signalling tougher times for manufacturers amid escalating trade tensions and heightened uncertainty.
Freight volumes in the United States were up by just 0.8% in the three months from March to May compared with the same period a year earlier, according to the Bureau of Transportation Statistics.
Volumes fell year-on-year in May, for the first time in more than two and half years, according to the agency's transportation services index.
Freight is growing at the slowest rate since the mid-cycle slowdown of 2015/16, based on the index, which covers movements by truck, railroad, barge, pipeline and air cargo.
Truck volumes were still up 3.4% year-on-year in March-May, but growth was less than half the rate at the same time last year.
Containerised rail traffic actually fell 3.8% in March-May after increasing by 6.9% in the same period a year previously.
The slowdown within the United States is part of a broader global downturn in freight which has spread across Europe and Asia.
At Hong Kong's International Airport, the busiest air cargo hub in the world, reported volumes shrank by 8% in the second quarter compared with 2018.
London Heathrow's cargo was down by 6% in the second quarter, the worst performance since the recession in 2009.
California's Port of Long Beach, one of the major entry points for trans-Pacific cargo, reported container volumes down almost 11% year-on-year in April-June.
Los Angeles, the other major cargo entry point on the U.S. West Coast, continued to eke out growth, but container trade was up by just 1%.
Globally, trade volumes were up by just 0.4% in the three months from February to April, according to the Netherlands Bureau of Economic Policy Analysis.
More recent data for individual ports and airports suggests growth will slow further and turn negative in May and June. Most historical proxies for trade suggest volumes will stay flat or fall in the second half of the year.
South Korea's KOSPI-100 equity index, which has a heavy exposure to export industries and has been closely correlated with world trade, is down almost 8% compared with July 2018.
BASF, the giant German-based chemicals company, which is also heavily exposed to trade and manufacturing activity, has seen its share price fall by more than 26% from a year ago.
The slowdown in global trade and manufacturing is weighing on oil consumption growth, especially for middle distillates such as diesel.
In a sign of how concerned investors are about the outlook, trade and manufacturing proxies remain under pressure even though markets are now factoring in a very high probability the Federal Reserve will cut interest rates.
The slackening global economy is now rebounding on the United States through a combination of weak export growth, heightened competition from cheap imports, and a strong dollar.
"Economic momentum appears to have slowed in some major foreign economies, and that weakness could affect the U.S. economy," U.S. Federal Reserve Chairman Jerome Powell said in his testimony to Congress this week.
For now, it remains unclear whether the current deceleration in trade and manufacturing growth is a mid-cycle slowdown like 1997/98 and 2015/16 or marks the end of the current business cycle.
But either scenario makes the case for interest rate cuts compelling - either as an insurance policy, or a cushion against recessionary forces.
So far, there are no signs of the second-round effects such as factory closures or job losses that could turn a slowdown into a full-blown recession.
The Federal Reserve and other major central banks will likely cut interest rates early and aggressively to try to keep it that way.
(Reuters, By John Kemp)