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The inventory market, as measured by the S&P 500, continues to inflate. However this isn’t an indication of financial well being. In reality, a scratch beneath the floor reveals an financial system that’s a lot weaker than marketed.
A number of a long time in the past, the inventory market was seen as a forward-looking animal. A spot the place traders thought of expectations about future earnings and efficiency to make selections affecting share costs. These days are lengthy gone.
Today the inventory market is solely speculative. There’s a big cohort of staff who blindly pour cash into index funds each two weeks by way of their firm sponsored retirement accounts. Others, underneath the spell of AI hype, consider we’re within the early phases of the best financial increase because the railroad. They journey over themselves to seize a bit of the mirage.
Thus, share costs and index ranges don’t present a lot significant details about the state of the financial system. Warning indicators are not discovered on Wall Road. To grasp what’s taking place and what’s coming subsequent you should look elsewhere.
For instance, U.S. heavy truck gross sales – the nuts and bolts of the financial system – are tanking. We’re not speaking about a bit dip. The numbers are flashing purple.
In August, heavy truck gross sales – the large Class 8 rigs that haul the overwhelming majority of our stuff – plummeted by a whopping 20,000 models to an annualized charge of 422,000. That’s the bottom we’ve seen since January 2022. And in case you have a look at the three-month shifting common, which smooths out the month-to-month noise, it has slipped to 438,000 – a degree not seen because the darkish, days of the 2020 lockdowns.
Nationwide Slowdown
This isn’t simply dangerous information for truck producers. It’s an disagreeable scenario for your complete nation. Why? As a result of heavy truck gross sales are one of the vital dependable main financial indicators there may be.
Who buys a brand-new, $150,000+ Class 8 truck?
Firms that must haul huge quantities of products. These are corporations that make and construct stuff. Producers, building corporations, and retailers. This sort of buy isn’t an impulse purchase. It’s an enormous capital expenditure primarily based on an organization’s forward-looking confidence within the financial system.
The choice to buy heavy vehicles relies on what’s taking place within the bodily world. Not the fictional world of Wall Road.
When a CEO indicators off on a fleet of recent vehicles, it’s as a result of she or he expects demand for his or her merchandise to be so excessive over the following 5 to seven years that they should improve the corporate’s logistics capability. It’s an funding in future financial growth.
The reverse can also be true, and this is the reason the decline in heavy truck gross sales is vital. When gross sales drop off a cliff, it means current trucking fleets are already underutilized.
By this, there’s slowing freight demand and a weakening outlook for manufacturing and building. Thus, CEOs hit the pause button on important, long-term funding as a result of they anticipate a slowdown within the motion, manufacturing, and sale of bodily items.
Heavy vehicles transfer the uncooked supplies to the factories and the completed items to the shops. Traditionally, a pointy decline in heavy truck gross sales has preceded almost each main recession. When the gears of commerce grind to a halt – which is what a stoop in trucking signifies – a slowdown is nearly assured to unfold throughout the entire financial system.
Nevertheless it’s not simply heavy truck gross sales which might be missing…
Entrance-Line Warning
This week the Institute for Provide Administration (ISM) launched its newest Buying Managers’ Index (PMI). The PMI is sort of a month-to-month report card for the U.S. financial system. It seems on the well being of the manufacturing or providers sector.
The PMI comes from the ISM, which is a bunch of execs who deal with procurement and provide chain gadgets. These buying managers are those shopping for all of the supplies, elements, and providers that corporations want. So, they’re on the entrance traces of enterprise exercise and have one of the best view of what’s taking place proper now.
Each month, the ISM surveys these buying managers. The questions are quite simple: Did your new orders go up, down, or keep the identical? What about manufacturing, employment, and inventories?
The PMI is calculated by rolling up these “higher,” “worse,” or “similar” solutions right into a single, easy quantity between 0 and 100. A studying above 50 means the sector is usually increasing or rising in comparison with the earlier month. Extra managers reported enchancment than decline. A studying beneath 50 means the sector is contracting or shrinking. Extra managers reported a slowdown in enterprise than progress. The additional beneath 50 it drops, the sooner the contraction.
For months, the manufacturing PMI has been caught in contraction territory (a studying beneath 50). Particularly, the PMI studying for September got here in at 49.1. This aligns with the trucking stoop, as producers cut back their output and thus their want for freight transport.
Furthermore, the PMI is a number one financial indicator. An organization doesn’t look forward to a recession to be formally declared to cease shopping for uncooked supplies. They sense a slowdown earlier than it reveals up in large authorities experiences like GDP or unemployment figures.
When buying managers begin slicing again on orders, slowing manufacturing, and letting their hiring cool off, that’s a direct sign that an financial slowdown is probably going coming.
Hold Your Eyes on the Highway
Family and enterprise debt are at file ranges: $20.5 trillion and $21.9 trillion, respectively. A decade in the past family debt was $14 trillion and enterprise debt was $13.2 trillion.
As of Q2 2025, bank card balances totaled $1.21 trillion excellent, auto mortgage balances stood at $1.66 trillion, and pupil mortgage balances had been at $1.64 trillion.
The actual fact is, the U.S. financial system nonetheless must reckon with the large quantities of debt that resulted from the Federal Reserve’s actions throughout the federal government mandated lockdowns of 2020-21. For years, the Fed saved rates of interest artificially low and dramatically expanded the cash provide. Companies and shoppers loaded up on debt in form.
In fact, when financial exercise slows down, money owed pile up. After debt piles up, it goes dangerous. People and companies declare chapter. Lenders take the losses. These are the types of unpleasant situations that happen throughout recessions.
Plunging heavy truck gross sales are an ideal sign of the approaching liquidation section. The surplus stock of vehicles (and the slowdown in orders for brand new ones) displays the over-expansion of the logistics and manufacturing sectors through the cheap-money increase.
Companies thought they wanted huge capability to maintain up with the credit-fueled demand. Now, because the false demand has exhausted itself, they understand their capital – these costly, under-utilized vehicles – are a legal responsibility that should be diminished.
The trucking decline gained’t be the reason for the recession. Somewhat, it’s a sign that the increase is popping to bust. What’s extra, a brand new cycle of Fed charge cuts gained’t cease it. Nevertheless, it can gas higher distortions all through the financial system.
At present, inventory market traders are taking over main threat, pushing indexes and valuations to all-time highs. But the financial system is weakening.
So, neglect the mania on Wall Road. The true story is on the freeway and within the manufacturing unit. When vehicles cease rolling and buying managers hit the brakes, you’ve obtained your clearest warning. The inflated inventory market is betting on a increase, however the bodily financial system is whispering bust.
Hold your eyes on the highway.
[Editor’s note: Join the Economic Prism mailing list and get a free copy of an important special report called, “Utility Payment Wealth – Profit from Henry Ford’s Dream City Business Model.” If you want a special trial deal to check out MN Gordon’s Wealth Prism Letter, you can grab that here.]
Sincerely,
MN Gordon
for Financial Prism
Return from Hold Your Eyes on the Highway to Financial Prism
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