Despite a few significant quarterly shifts within individual shares, Truckable Economic Activity (TEA) was steady overall in the third quarter of 2019, MacKay & Company announced Thursday during a new TEA quarterly webinar.
After posting 2.3 percent growth in Q2, TEA slipped only fractionally to 2.2 percent in Q3, buoyed by consistent strength in consumption and government spending and an increase of exports to offset a similar slip in imports. The strong quarter also extended the longest continuous economic growth period in American history to 126 months — six months longer than the March 1991 to March 2001 expansion.
Yet despite strong overall numbers, Bob Dieli, founder and president, RDLB Inc., and MacKay & Company in-house economist, says granular data within TEA does show a few economic weak spots.
Dieli says imports and exports represented 14 percent of TEA in 1985 but are now 25 percent. Though TEA is different from GDP in how it calculates imports (GDP deducts imports entirely; TEA includes 50 percent of them, because they “spend time on a truck,” Dieli says) the expanded overall influence of trade on the economy has increased its vulnerability.
Another data point that Dieli says causes concern is how the previous six quarters compare to the six quarters that immediately preceded them when evaluated against 2012 chained dollars. Dieli says total TEA was $743.2 billion from 2017 Q1 to 2018 Q2, but just $398.9 billion from 2018 Q2 to 2019 Q3, with Truckable Investment, Exports and Imports all falling precipitously over the last six quarters.
Dieli also references his Enhanced Aggregate Spread (EAS), which serves as his most detailed indicator for potential economic contraction. Dieli says every recession over the last three decades has followed a drop in EAS, and the index’s last reported total of 88 in July 2019 is well within its danger zone less than 200 basis points.
In forecasting out from today, Dieli summarizes the weakest element of TEA entering 2020 is exports, with imports and investments also somewhat lagging. Regarding exports in particular, Dieli’s TEA report notes “weaker overseas activity has already taken a toll on exports. Prospects for improvement are slim.”
Thursday’s webinar also closed with a Q&A segment. Most of the questions touched on the trade dispute and upcoming election. Regarding both, Dieli says it’s important to keep the news in perspective.
“Often people have what we call ‘current-itis,’” he says. “They hear something happen and expect something else to happen in reaction the next day.”
Dieli says TEA and the greater economy doesn’t work like that. Economic changes, even those generated by a presidential election, occur gradually over a number of months and years.
“Don’t let the last headline be what makes the basis of your next decision,” Dieli says.
For more about TEA, and to register to receive MacKay & Company’s quarterly TEA reports, please go to https://www.mackayco.com/tea.
