Transportation Stocks as an Indicator of Coming Price InflationE

Ed Yardeni notes that:

The S&P 500 Transportation stock price index is only 5.6% below its record high of last July. The DJIA Transportation index is only 8.0% below its record high. That’s impressive given all the chatter last summer that the economy was growing at “stall speed” and could be heading into a recession.

He also notes that:

The S&P 500 Transportation index has been highly correlated with the CRB industrials spot price index. The former has been tracking the latter very closely since 2007. There has been a bit of divergence since early October of last year when the Transportation index rebounded sharply while the commodity index continued to fall.

I am the first to warn that it is dangerous to make too much of a correlation in the field of economics, where there are no constants, but this doesn't mean we can't look at data to get a rough idea of what might be going on.

As Yardeni notes, the S&P 500 Transportation index also tends to track railcar loadings and truck tonnage. The railroads industry accounts for 44% of the market capitalization of the S&P 500 Transportation index.

Since railroad traffic is about moving commodities, it is not hard to understand that a boost in the Transportation index may be a signal of coming price inflation. More traffic strongly suggests more bidding for commodities.

Railcar loadings remained at a cyclical high during the first week of the new year at the highest pace since the end of 2008. The ATA Trucking Index (which measures tonnage) rose for the third straight month in November, matching its highest reading since January 2011.

Again, there is nothing in this data that says these developments must result in stronger price inflation, but they do suggest that demand for commodities is strong. Something that shouldn't come as a surprise given Bernanke's money printing boost to the economy.