So many of the questions and concerns about the economy that are regularly voiced by the media, and routinely parroted by individuals, are expressions of fear that are not rooted in any fundamental data, or at least not any serious study of the fundamental data. As a result, it is easy to oscillate between incredibly frustrated and extremely amused when trying to answer their questions about the economy. To make rational sense of these questions, it is useful to segregate the economy into three parts: technology, consumer and industrial; and then further separate it into domestic and international. Using this construct allows us all to have a clear dissection of the concerns and the data.
As is often the process when studying anything economic, almost all (if not all) of the variables are dependent (or interdependent). Following recent commentary on the Consumer Economy and the Industrial Economy, I will endeavor to clearly outline what is happening in the Technology Economy.
The air cargo volume and pricing data, available on FreightWaves SONAR under the symbols starting with “AIR,” are a great place to start when assessing the strength of the Technology Economy. Why? Because technology is either without any tangible weight, as it is in software or data that is easily sent electronically; or it is very high-value and low in density, so in the cost of goods delivered, the cost of delivery is less important than the speed of delivery. For example, if you are shipping a pallet of high-end computer chips worth over $1 million, do you care whether the transportation cost is $10 or $10,000, or do you just want it where you want it, when you want it, without it being lost stolen or damaged?
In one simple graph, the Transportation Air Cargo Index Price out of Shanghai provides a regular update on whether volumes are strong enough to drive up the price or weak enough to allow pricing to fall. Obviously, there are many more factors to consider – how much capacity is being added, seasonality and timing of major product launches. All of these factors are constantly changing, but thoughtful analysis of all the underlying trends should start with the big picture, i.e., is the price going up or down?
In a fashion not dissimilar from the industrial and consumer economies, as I already pointed out in recent articles, the growth last year in the technology segment was so strong that the rate of expansion was straining the infrastructure in place, especially in transportation, to such an extent that there were substantial signals of material amounts inflation being produced (albeit, signals that later proved to be false positives, but signals nevertheless). The recent weakness in pricing could be a ‘false negative’ resulting from the difficult comparisons with 2018, but the ongoing negative volume being reported by airports throughout the Asia Pacific region suggest that the weakness in pricing is more than just ‘tough comparisons.’
Similar data on pricing out of the Hong Kong airport paints a picture similar to the data on pricing out of Shanghai and coincides with an ongoing slowdown in global semiconductor billings (down 7 percent in March and down 13 percent year-to-date).
Whether it is being driven by product cycles in technology, the ongoing trade tariffs dispute or other reasons is irrelevant. The technology economy is a powerful driving force around the world. High-paying jobs, capital investments and markets throughout the other sectors of the economy depend on it. Continued softness in the technology economy may not be enough to drive the entire economy into a contraction, but lack of continued expansion in the technology economy will result in lower rates of growth through those other sectors.