Mortgage rates may be continuing to rocket upwards but other important leading indicators of the trajectory of the US economy are going in the other direction.

This is interesting and also very welcome.

It suggests that, in certain sectors at least, some of the incredible inflationary pressures we have witnessed over the last two years are finally beginning to ease.

Are we not just at but beyond peak inflation? Has it already happened?

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Let us examine two important pieces of data that came out this week and discuss what they could mean for the broader economic outlook.

• First off, US transportation share prices have been selling off strongly.

To use one representative benchmark, the Dow Jones Transport index sold off over 5% on the first of April. This marks one of the largest single day declines in the index's existence and suggests that a serious re-rating of the sector is occurring.

If we zero in on the components of the above, we can see that the S&P Trucking subindex plunged by over 8% and reveals that most of the decline is concentrated in the freight sector.

• Now, worryingly, falling transportation company shares typically acts as a lead for the overall economy.

The logic is pretty simple: truck, train and other firms heavily engaged in logistics, shipping and like-minded industries are among the first to record slowing demand for goods. These firms are therefore the most sensitive to an economy rolling over and highly cyclical.

Not surprisingly, their investors are very focused on any signs of slowing demand/profits.

In turn, this means that their share prices are keenly watched as an overall barometer of economic health as well as a lead on a economic downturn. So, it is very possible that the transportation sector are leading the market (and more importantly, the economy) down.

But there is another possibility:

• This could be a prime example of something called "the bullwhip effect" in action.

Here is a good overview.

The bullwhip effect is a demand distortion where small fluctuations in demand at the consumer level can cause progressively larger changes in demand at the wholesale, distributor, manufacturer and raw material supplier levels. The effect is named after the physics involved in cracking a whip.

Here is an illustration:

Relatively small, and often short-term, changes in consumer demand can lead to significant shifts in the pressure placed on suppliers.

The big takeaway is that, over time, what appears to be insatiable demand can suddenly evaporate and lead to crashes in prices as inventories swell and past over ordering leads to too much supply piling up.

Here is a great speech on this topic as recently as December by the BIS' Head of Research, Hyun Shin. He highlighted then that we could be looking at exactly this type of scenario in 2022.

And to his credit, there is now increasing evidence that transportation and especially trucking are perhaps experiencing exactly this type of bullwhip effect.

Endless headlines about a trucker shortage over the last two years combined with rising (soaring?) wages in the sector has brought a far greater number of trucking companies into business.

See the new trucking companies here:

This is hardly that shocking. When a company like WalMart is getting headlines for offering $110,000 starting wages to drive for them, you know that many, many people around the country are sitting up and thinking: I can do that!

These new entrants didn't hurt transportation firms' profits while there was an endless surge of demand for goods during the pandemic but now that the disease is finally retreating the consumption pattern is shifting again.

People are going out more (finally!), movies, restaurants, bars, amusement parks, ballparks, you name it.

This may be having a profound impact on the freight industry. More and more truckers is finally meeting less and less supply.

So, what is it? Crashing economy or bullwhip "effect"

Tough call!

But there is some evidence in other sectors that it could be more the latter than the former.

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