Reading the Tea Leaves: Diesel Fuel Sales as a Leading Economic Indicator

An article in the Wall Street Journal last Thursday (“New Ways to Read Economy,” Cari Tuna, April 8, 2010) highlighted several emerging economic indicators, including diesel fuel sales. Improved systems for collecting and disseminating data makes it easier today to track diesel fuel sales. While the profitability of leading trucking firms has long been considered a leading economic indicator, diesel fuel sales has the advantage of being a timelier metric, and the data is more geographically and industry specific.

Edward Leamer, an economist at the University of California Los Angeles (UCLA) Anderson School of Management, teamed up with Ceridian Corp., a payments and payroll company, to collect data on diesel purchases by truckers nationwide. According to the WSJ article:

The data anticipate increases in U.S. industrial production and gross domestic product, said Mr. Leamer, director of the school’s economic-forecasting group.

Mr. Leamer discovered that truckers’ diesel purchases on Interstate Highway 5 from California to Oregon, a major timber-trucking route, are a leading indicator of construction employment in California. Diesel sales on Interstate Highway 80 from Sacramento to Salt Lake City, a trucking route for the San Francisco Bay area’s manufactured goods, can help predict California’s manufacturing employment, he said.

If only he had the diesel-fuel data in the first half of 2008, when major government-issued indicators failed to hint at the U.S. economy’s impending downward spiral. At the time, Mr. Leamer said, UCLA forecasters chose not to announce a recession because GDP was still growing and the Bureau of Labor Statistics was reporting relatively mild job losses.

Bad call. The government later revised the GDP and jobs data downward, and the National Bureau of Economic Research concluded that the recession started in December 2007. The jobs data are unreliable because they are based on sample surveys and don’t adequately capture company openings and closings, Mr. Leamer said in hindsight.

When the UCLA economists reviewed the fuel-purchases data late last year, they saw diesel buying had peaked in mid-2007, indicating that fewer goods were being made and moved across the country in the months after. “Had we been aware of that data in 2008,” Mr. Leamer said, “we would have made a different call.”

This article sparked an idea: What if leading carriers were willing to join together and provide their shipment data to trusted third parties on a weekly basis? These third parties could aggregate and analyze the data, while keeping each carrier’s data confidential. This could provide carriers with a new revenue stream, although probably a small one. The bigger value proposition for carriers would be receiving advance warnings about the state of regional economies and key industries. This information would in turn help them perform better financial, capacity, and labor planning.

What do you think? What economic indicators do you use at your company? Post a comment and share your viewpoint!

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