By the time the Federal Reserve reaches a decision on its policy rate on Wednesday afternoon, it will most likely have looked at alternative measures of economic activity.
One such bellwether on the real economy is the sale of heavy trucks, which move everything from food to basic materials to retail goods.
Since 1979, when the data became available, a collapse in sales of heavy trucks has coincided with recessions. The recent downturn in heavy truck sales, which started in 2023, should be a concern for policymakers.
We note, however, that there have been three episodes where a drop in heavy truck sales did not precede a recession. Rather, these declines have turned out to be mid-cycle corrections in the business cycle that presaged a recession by several years.
Looking at the year-over-year growth of heavy truck sales and real GDP growth, we notice a correlation from 1979 to 2009 and more deviation thereafter.
While heavy truck sales growth has been predominantly negative during the past 24 months, real GDP growth has remained positive, averaging 2.7% over the same period.
This perhaps speaks to underlying changes in the economy as it moves further from production to intellectual activities.
There is an underlying strength in the economy.
As Federal Reserve Chairman Jerome Powell said in August at Jackson Hole, the economy has shown resilience amid sweeping changes in policy, all of which makes for difficult decision-making for the Federal Open Market Committee.
