Truck data points to long haul

The Truckometer has been on a declining trend since October last year, suggesting damp, even negative, GDP figures in the June and September quarters this year. Photo / APN

A new economic indicator is pointing to weak activity over the next six months.

The ANZ Truckometer, developed by Sharon Zollner, a senior economist at ANZ National Bank, is derived from traffic volumes monitored and collected by the New Zealand Transport Agency.

It is "hard" data, counting something physical and real, in contrast to most leading or forward-looking indicators, which are based on sentiment surveys.

The latter suffer from the vexing question of whether confidence will translate into actual decisions, Zollner says.

But unlike most hard data the traffic numbers are available promptly, within a few days of the end of the relevant month.

And the Truckometer turns out to have a good fit with what happens to gross domestic product six months later.

Among leading indicators that counts as long-distance vision.

Zollner has selected a subset of roads and then tested for each of them whether it is best to count only light vehicles or trucks or both.

The Truckometer has been on a declining trend since October last year, suggesting weak, even negative, gross domestic product out-turns in the June and September quarters this year.

"However it would be unwise to take the Truckometer's point predictions as gospel," Zollner said.

Like any indicator it has its limitations.

Right now it is at odds with other indicators, notably from the housing market, which has taken a distinct turn for the better - albeit from a low base in terms of activity and a high base in terms of prices relative to incomes.

"It would be unusual for the economy to go into recession when the housing market was picking up," Zollner said.

"But the Truckometer is suggesting the housing market is going to be insufficient to propel the economy through this year. Extremely low interest rates are working their magic but the Truckometer is suggesting that is not going to translate into broader economic momentum as it did in the good old days of debt accumulation."

The Truckometer was best interpreted as an indicator of base momentum and turning points in the economy, Zollner said.

It is pointing to pretty mediocre activity.

"Normally, because of lags in producing economic data, one doesn't know for sure about an economic soft patch until it's pretty well over. This indicator, with its unprecedented lead on GDP growth, suggests we're in the thick of it right now."

Zollner said one bright spot was that the pace of decline had slowed.

She said that light traffic - vehicles weighing less than 3.5 tonnes - have considerably more weight in the Truckometer index than heavy traffic.

Light-vehicle traffic is what provides the six-month lead to GDP, while heavy traffic is contemporaneous with GDP.

"Trucks are moving produce, after all.

"If the heavy traffic starts to follow the light traffic down in the June and September quarters we will put more faith in the Truckometer. If not, we will discount it accordingly."

Zollner acknowledges that other new economic indicators have failed to live up to their early promise.

"The housing market is picking up markedly, and the dairy sector has had a bumper year. But retailers continue to struggle and petrol prices are near record highs.

"Interest rates are low; the New Zealand dollar is punitively high. Dark clouds hang over Europe; Australia is importing our workers."

In such an environment it paid to respect the messages from as many indicators as possible, but trust none in isolation, Zollner said.

"The ANZ Truckometer is one indicator flagging challenges ahead."